MARKET DEVELOPMENT
‘Revise Baseline Price of CPO Duty To RM2,300’ Call
‘Revise Baseline Price of CPO Duty To RM2,300’ Call
17/05/2013 (The Star) - The current baseline price to determine the crude palm oil (CPO) export duty should be revised higher to RM2,300 from the RM2,250 per tonne currently to commensurate with the continued downtrend in CPO prices and the rising cost of production among oil palm plantation operators, said industry players.
At present, the CPO price is hovering at the RM2,200-RM2,300-per-tonne level, while the CPO cost of production has increased significantly between RM1,400 and RM1,500 per tonne compared with the RM1,200 per tonne experienced by most efficient local planters previously.
Industry consultant M.R. Chandran told StarBiz that it was timely to review the baseline price for the CPO export duty, which has been unchanged at 4.5% for four consecutive months (March to June this year), reflecting the lower CPO price situation.
“It is quite normal to review the export duty, as even India, the world's largest edible oil importer, revises its duties on soybean and palm oil from time to time to ensure continued competitiveness in its domestic vegetable oils,” he said.
Chandran pointed out that the current baseline price for local CPO export duty at RM2,250 should be increased to make it competitive for local CPO exporters, who are now experiencing a margin squeeze, given their higher cost of production on the back of the minimum wage policy as well as the lower crop production season.
“The situation is making it more difficult for oil palm planters to set aside the funds for replanting, and many would also delay their replanting activities.
“Replanting is important, as it is a strategic approach towards future crop production. Lower yields would translate into lower revenues for oil palm planters,” explained Chandran.
As at Jan 1, Malaysia had slashed its CPO export duty to a range of between 4.5% and 8.5% from 23%, which had been unchanged since the 1970s mainly to counter Indonesia's lower CPO export duty regime that has put many local palm oil players in an uncompetitive position.
On the effectiveness of the new CPO export duty structure, Palm Oil Refiners Association of Malaysia chief executive officer Mohammad Jaaffar Ahmad said it was still premature to evaluate the effectiveness of the policy, as it had only been in place for six months.
However, on the whole, the palm oil industry's export performance remained strong during the January-to-April period this year, rising 14% to six million tonnes vis-a-vis the same period last year.
Based on the Malaysian Palm Oil Board data, one of the major reasons for the strong export growth was the increase in processed palm oil by 13%, or 0.58 million tonnes, as against last year, which is well contributed by the refining industry.
As for the CPO duty of 4.5% for the last four months (March to June 2013), the duty, as announced for every month, falls within this formula and is determined based on the gazetted prices, which are determined based on the market or export values.
One immediate impact of the policy is the steady reduction of palm oil stock in the country, said Jaaffar.
“The price of CPO is not only the reflection of the stock levels and the duty being levied, but also other market dynamics such as soya production and export from Argentina and Brazil, US plantings and crop estimates, crop prospects in Europe, weather conditions worldwide, the price of Brent crude oil as well as China and India local production and stock levels,” he noted.
He said that the good news was that the local CPO price was still holding steady and above the average production cost.
“The plantation companies have not suffered losses (in terms of a price collapse) and the country is still exporting palm oil competitively,” added Jaaffar.
At present, the CPO price is hovering at the RM2,200-RM2,300-per-tonne level, while the CPO cost of production has increased significantly between RM1,400 and RM1,500 per tonne compared with the RM1,200 per tonne experienced by most efficient local planters previously.
Industry consultant M.R. Chandran told StarBiz that it was timely to review the baseline price for the CPO export duty, which has been unchanged at 4.5% for four consecutive months (March to June this year), reflecting the lower CPO price situation.
“It is quite normal to review the export duty, as even India, the world's largest edible oil importer, revises its duties on soybean and palm oil from time to time to ensure continued competitiveness in its domestic vegetable oils,” he said.
Chandran pointed out that the current baseline price for local CPO export duty at RM2,250 should be increased to make it competitive for local CPO exporters, who are now experiencing a margin squeeze, given their higher cost of production on the back of the minimum wage policy as well as the lower crop production season.
“The situation is making it more difficult for oil palm planters to set aside the funds for replanting, and many would also delay their replanting activities.
“Replanting is important, as it is a strategic approach towards future crop production. Lower yields would translate into lower revenues for oil palm planters,” explained Chandran.
As at Jan 1, Malaysia had slashed its CPO export duty to a range of between 4.5% and 8.5% from 23%, which had been unchanged since the 1970s mainly to counter Indonesia's lower CPO export duty regime that has put many local palm oil players in an uncompetitive position.
On the effectiveness of the new CPO export duty structure, Palm Oil Refiners Association of Malaysia chief executive officer Mohammad Jaaffar Ahmad said it was still premature to evaluate the effectiveness of the policy, as it had only been in place for six months.
However, on the whole, the palm oil industry's export performance remained strong during the January-to-April period this year, rising 14% to six million tonnes vis-a-vis the same period last year.
Based on the Malaysian Palm Oil Board data, one of the major reasons for the strong export growth was the increase in processed palm oil by 13%, or 0.58 million tonnes, as against last year, which is well contributed by the refining industry.
As for the CPO duty of 4.5% for the last four months (March to June 2013), the duty, as announced for every month, falls within this formula and is determined based on the gazetted prices, which are determined based on the market or export values.
One immediate impact of the policy is the steady reduction of palm oil stock in the country, said Jaaffar.
“The price of CPO is not only the reflection of the stock levels and the duty being levied, but also other market dynamics such as soya production and export from Argentina and Brazil, US plantings and crop estimates, crop prospects in Europe, weather conditions worldwide, the price of Brent crude oil as well as China and India local production and stock levels,” he noted.
He said that the good news was that the local CPO price was still holding steady and above the average production cost.
“The plantation companies have not suffered losses (in terms of a price collapse) and the country is still exporting palm oil competitively,” added Jaaffar.