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M'sia palm oil refiners brace for Indonesia's proposed export duty change

Publication Date : 06-05-2014

 

Local palm oil refiners are bracing for the impact of Indonesia’s proposed changes to its palm oil export duty structure.

Palm Oil Refiners Association of Malaysia (PORAM) chief executive officer Mohammad Jaaffar Ahmad said: “Any arbitrary decision by Indonesia to re-structure its palm oil export tax structure will undermine the stability of crude palm oil (CPO) prices vis-à-vis processed palm oil prices for both countries.”

To recap in 2011, Indonesia drastically slashed its palm oil export tax duty of refined bleached and deodorised (RBD) palm olein in bulk to 7% from 15%, but retained its CPO export duty at 15% to boost the export of its processed oils.

Jaaffar pointed out that: “This move saw local palm oil industry suffering severe losses estimated at 9 billion ringgit (US$2.7 billion) in terms of palm oil export revenue in 2012.

“Even the price of CPO declined by 14.8% to 2,764 ringgit per tonne in 2012 from 3,219 ringgit per tonne a year earlier while RBD palm olein fell by 15.5%.

“In fact, the effect of the low CPO prices in 2012 also continues to linger during most part of 2013.”

Jaaffar told StarBiz that PORAM members viewed with concern over another round of changes to Indonesia’s palm oil export tax structure slated either by later part of this year or early next year as reported by a foreign wire last week.

“However, since we still have not seen the exact changes to be made, it is very difficult for us to assess the impact on domestic palm oil export,” he added.

Based on PORAM’s analysis, since Indonesian palm oil refining capacity will increase to 45 million tonnes this year as reported, Jaafar said there would be an excess refining capacity compared with Indonesia’s CPO production of about 30 million to 35 million tonnes.

“This situation is similar to Malaysia whereby demand is expected to be higher than the supply of CPO.

“Therefore, the only way for Indonesia to boost its value-added palm oil exports is to further reduce the duty structure on processed palm oil or remove all the duties for processed palm oil like in Malaysia.

“Any further reduction in Indonesian processed palm oil duty will result in the widening (increase) in the tax differential with Malaysia.

“Malaysian palm oil exporters would be in the danger zone once the duty differential widens to more than 3%,” Jaaffar explained.

In January 2013, Malaysia finally implemented its new CPO export duty structure which has been unchanged since the 1970s as a counter measure to Indonesia’s palm oil export duty introduced in 2011 which has been effective to “level the playing field” between Malaysia and Indonesia.

The effectiveness of Malaysia’s new CPO export duty structure was reflected by the performance of domestic palm oil exports in 2013 which rose 3.1% for palm oil and an increase of 7.9% for palm kernel oil (PKO) versus a decline of 2.4% for palm oil and down 7.9% in PKO in 2012.

Furthermore, Malaysia has abolished the CPO duty free export quota given to some big plantation companies with operations overseas.

“This policy must be maintained to ensure continued stability in CPO prices,” he added.

Jaaffar said: “Malaysia is also able to limit the tax differential between the two countries to between 1.5% and 2% since March last year.

“This roughly works out to around $10 to $20 per tonne of local RBD palm olein advantage to the Indonesian palm oil exporters. This is in comparison with the advantage for Indonesian RBD palm olein of between $30 and $100 per tonne before Malaysia introduces its new CPO export duty.”

Therefore, Jaaffar hoped that the Indonesian and Malaysian governments would consult each other and try to find a “win-win” solution for the betterment of the palm oil industry rather than “to undermine each other in terms of palm oil export tax structure.

“Any reaction from Indonesia which is detrimental to Malaysia will result in a counter-reaction from Malaysia later. Both countries should be working together instead of fighting with each other.”

*US$1 = 3.26 ringgit

 

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