PETALING JAYA: The local palm oil sector is expected to benefit from Indonesia’s recent hike in crude palm oil (CPO) and refined palm oil export levies, says RHB Research.
The revision, effective tomorrow, will see Indonesia increasing its CPO export levy to 10% from 7.5%, while the levy on refined palm oil will rise from 4.5% to 7.5%, and for biodiesel from 3% to 4.75%.
RHB Research said in a report the increase in CPO export levies is expected to generate higher revenue for Indonesia’s biodiesel fund agency (BPDP), enabling it to support the country’s biodiesel mandate and the national replanting programme.
“The revision of the export tax to 10%, together with the provision of the subsidy to only the public service obligation segment, will ensure that BPDP has enough funds to fully sustain B40 biodiesel, even in the light of falling crude oil prices.
“We estimate that with a 10% levy rate, BPDP will have sufficient funds to subsidise biodiesel, provided gas oil prices do not drop below US$49 per barrel from the current US$82, assuming all other factors remain constant,” the research house noted.
Although the levy hike will lower average selling prices for Indonesian planters by RM108 per tonne at a benchmark price of RM4,300 per tonne, RHB Research believes it could lift global CPO prices, which would directly benefit Malaysian producers.
“This is in light of a more stable biodiesel mandate, which will offset the negative impact to Indonesian planters,” it added.
RHB Research said the change is also projected to narrow the pricing edge of Indonesian downstream refiners.
The research house has estimated that the net margin advantage for downstream refiners in Indonesia should marginally drop from US$84 per tonne to US$80 per tonne at a CPO price of MYR4,000, making Malaysia’s downstream products more competitive in export markets.
However, assuming that there are no changes to CPO prices, RHB Research expects the impact to Indonesian planters would be earnings being lower by between 6% and 12%, depending on forward sales strategies and percentage of local sales.
RHB Research maintained its earnings forecast for the sector.
The research house also maintained its “overweight” call on the plantation sector, citing supportive fundamentals from biodiesel demand and a stable-to-firm CPO price environment.
For Malaysian planters, effective CPO prices remained more stable with SD Guthrie Bhd
, Johor Plantations Group Bhd and Sarawak Oil Palms Bhd well-positioned to benefit.
