Suspension of CPO export duties to clear high stock level

A file photo of a worker collecting palm oil fruit at a factory in Sepang, on Feb 18, 2014. – Reuters

KUALA LUMPUR: Malaysia’s move to suspend export duties on crude palm oil (CPO) until Dec 31, 2019 will help to improve Malaysia’s CPO export competitiveness to clear the nation's current high stock level, CIMB Equities Research said.

The suspension follows Indonesia’s decision to revise its CPO export levy structure and keep levies at zero till end-May 2019. 

The research house said on Friday currently, CPO exports from Malaysia enjoy zero export tax as the CPO price is below RM2,250 per tonne.

The Primary Industries Minister Teresa Kok was quoted saying the move was expected to encourage CPO exports and indicated that African countries, Middle Eastern nations, and Russia are interested in buying Malaysian CPO. 

She also indicated that palm oil producers have complained about the lack of foreign workers, and taxes during her recent dialogue session with planters in Sandakan.
“The decision to suspend export duties on CPO for the rest of the year was a slight surprise to us, timing wise, but not totally unexpected. 

“This is because the Primary Industries Minister had in Oct 2018 revealed that revising the CPO export duty would be among measures that could be taken to ensure the price competitiveness of Malaysian CPO,” CIMB Research said.

To recap, in December 2018, Indonesia, the world’s top exporter of palm oil, revised its export levy for palm oil whereby it will no longer collect levies from palm exporters when prices are below the threshold of US$570 per tonne, but will charge US$10-$25 per tonne once prices are in a range of US$570-$619 per tonne. The levy will rise to US$20-$50 per tonne when prices hit above US$619 per tonne. 

In March 2019, Indonesia announced that it will keep the palm oil export levy at zero from March to May 2019. It will revert to the existing export levy schedule for CPO on June 1, 2019. 

Malaysia’s move is to support CPO prices, keep Malaysian palm oil competitive.

“ We view this move as supportive of CPO prices in view of Malaysia's high palm oil stock of 2.92m tonnes as at end-Mar 2019. The decision to suspend the CPO export tax will help keep Malaysian palm oil competitive to raise exports and lower stockpile ahead of the peak production season for palm oil in 2H19, to avoid a repeat of the sharp drop in CPO prices in 4Q18. 

“However, this move is not likely to have any impact on CPO prices in the near term as Malaysia's CPO export tax has been stuck at zero level since September 2018, as monthly average CPO prices continue to stay below RM2,250 per tonne. 

“The slower-than-expected drawdown in Malaysian palm inventory, coupled with projection of high global oilseeds production have depressed CPO prices recently.  We keep our Neutral rating and average CPO price of RM2,400 per tonne, but could revisit our price outlook if stocks remain stubbornly high in 2Q19,” CIMB Research said.
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