PETALING JAYA: The move by Indonesia to lower the levy imposed on its palm oil exports could help narrow the country’s CPO price discount to Malaysia, which has expanded to US$100 (RM420) per tonne in the third quarter.
CGS-CIMB Research said the development will raise the competitiveness of Indonesian palm oil products as there would not be any levy imposed when the CPO price is below US$570 per tonne.
“The bulk of the savings is likely to flow back to the farmers via higher domestic CPO prices.
“We believe this will help narrow Indonesia’s CPO price discount to Malaysia.
“However, should there be an excess supply of palm oil in the market, we are of the view that some of the benefits may be accrued to importers via lower prices,” the research house said.
It said savings from the levy could be split between farmers and importers, depending on palm oil inventory levels.
“For now, we expect most of the benefits to flow through to the farmers via higher domestic CPO prices,” it said.
The research house noted that the news was “slightly positive” for upstream planters with exposure to Indonesia as it could help support CPO prices at current levels.
The Indonesian government announced yesterday that its rule on levies for palm oil and derivative products would be relaxed effective immediately following the drop in CPO prices.
According to a Reuters report, Indonesia will not collect levies from exporters when prices are below a threshold of US$570 per tonne, and charge US$10-US$25 when prices are in the range of US$570-US$619 per tonne. The levy will increase to US$20-US$50 when prices exceed US$619 per tonne.
Previously, Indonesian exporters had to pay a levy of US$20-US$50 per tonne, irregardless of what palm prices were. The existing rules for export taxes remain the same.
In Malaysia, the CPO export duty was set at zero from September to December 2018 as the MPOB CPO value per tonne was lower than the tax threshold of RM2,250 per tonne.
Maybank Investment Bank Research said Indonesia’s move will benefit pure upstream planters based there and Malaysia’s exports.
“Indonesia’s downstream players will be the biggest losers as they now have to compete on a level playing field with Malaysian players in the export market.
“We are generally positive on this change as it may help to reduce Malaysia’s high stockpile,” it said.
The research house expects the new ruling to benefit upstream players in Indonesia like Genting Plantations Bhd , IOI Corp Bhd , TSH Resources Bhd and IJM Plantations Bhd , but to have neutral impact on integrated players in Indonesia like Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd.