File photo shows workers gathering oil palm fruits at a factory in Sepang outside
Kuala Lumpur in 2009. Malaysia, the word’s No.2 palm oil producer, needs to
address Indonesia’s export tax changes to win back orders from the world’s top
supplier. – Reuters pic

07/03/2012 (The Malaysian Insider) - Malaysia, the world’s No.2 palm oil producer, needs to address Indonesia’s export tax changes to win back orders from the world’s top supplier or stocks will rise and bring prices below RM2,500 (US$830), an industry official said today.

Malaysia has been struggling to come up with a response to Indonesia’s move to slash export tariffs for refined palm oil, which has boosted margins for its domestic processors and allowed them to offer discounts to overseas buyers.

Indonesia’s tax change has shifted orders away from Malaysia, which is a key palm oil refining hub in the Southeast Asian region and slowed exports.

“If the Malaysian government does not address the duty disadvantage, closing stock could increase to 2.6 million tonnes and prices could drop to RM2,500,” said U.R. Unnithan, executive director at Carotino Sdn Bhd, a Malaysian-based biodiesel firm.

Benchmark Bursa Malaysia palm oil futures have been staying well above RM3,200 on strong demand from top buyers China and India as well as tight soyoil supply arising from lower crop in South America.

Refiners have been urging the government to scrap duty free export quota of crude palm oil that covers three million tonnes, or 15 per cent of this year’s production, to keep feedstock costs in Malaysia lower.

But the government has pressed on with the duty free quota to help key palm oil firms like Sime Darby and IOI Corp feed their overseas refineries at a lower cost.

This has left Malaysian refiners in a fix as their imports of Indonesian crude palm oil to make up for the shortfall has become more expensive as Jakarta had raised export taxes for the unrefined grade.

“I am hopeful that the Malaysian government will put some strategy in place, and if that happens, we will see an increase in exports,” Unnithan said.

He added if Malaysia acted to help its refiners, exports for the year could rise to 19 million tonnes, a six per cent rise over 2011, and prices could trade in the range of RM3,100-3,300.

Indonesia had kept export taxes for palm-based biodiesel lower in 2010 than that of crude palm oil, dealing the first blow to Malaysian renewable energy producers as they cannot compete with margins.

As a result, Indonesia exported around 1.37 million tonnes of palm-based biodiesel in 2011, while Malaysia only exported 50,000 tonnes, Unnithan said, signalling the same fate for Malaysian palm oil refiners hit by new export tax changes. – Reuters