MARKET DEVELOPMENT
Malaysian Palm Oil Sector Bracing for Indonesian Levy Impact
Malaysian Palm Oil Sector Bracing for Indonesian Levy Impact
15/09/2015 (The Star) - Levy impact: CIMB Research says the levy has led to concerns that Malaysian refiners would again be disadvantaged as they do not enjoy the same margin advantage of US30 per tonne since the export tax for both local CPO and processed palm products is currently zero.
Levy impact: CIMB Research says the levy has led to concerns that Malaysian refiners would again be disadvantaged as they do not enjoy the same margin advantage of US30 per tonne since the export tax for both local CPO and processed palm products is currently zero.
PETALING JAYA: Local palm oil refiners are bracing to retain their refining margins in the coming months as their competitive advantage is expected to be affected by the new palm oil levy imposed by Indonesia in July.
CIMB Research said in its latest report that Indonesian refiners were regaining margin advantage as the new export levy had lowered the domestic crude palm oil (CPO) price by US$30 to US$50 per tonne, helping to improve the processing margins of downstream processors in the republic.
The research unit is slightly negative on the medium term prospects of the local refiners following its recent meeting with officials from the Palm Oil Refiners Association of Malaysia (Poram) saying that “local refiners are expected to face stiffer competition from Indonesian refiners with the new palm oil levy, if CPO stays below RM2,250 per tonne.”
Prior to this, there was no margin advantage for Indonesian refiners as the export tax for both palm products was zero as CPO price had been below US$750 per tonne since Oct 2014.
CIMB Research noted the levy had also led to concern that Malaysian refiners would again be disadvantaged as they do not enjoy the same margin advantage of US$30 per tonne since the export tax for both local CPO and processed palm products was currently zero.
This is because CPO price in Malaysia is below RM2,250 per tonne, the threshold price that triggers the export tax.
Meanwhile, Poram has also proposed for the Government to review the current Malaysian export duty structure following Indonesia’s introduction of new export levies.
Based on CIMB Research analysis, Malaysian refiners could be significantly less competitive relative to the Indonesian refiners when CPO price is below RM2,250.
“Should Malaysia revise its export tax to consider Indonesian CPO levies, it would be short-term negative for Malaysian palm oil producers as it could lead to lower domestic CPO prices.
“However, we think that the government is unlikely to implement this in the near term as it could weaken the already-low CPO price and reduce the incomes of the country’s palm oil smallholders,” added the research unit.
On top of the new Indonesian levy, the 6% goods and services tax (GST) imposed in April has also raised the local palm oil refineres’ cost of doing business as their cash flows are tied up in payment for GST input for at least 14 days.
A recent Poram survey revealed that 88% of the respondents did not receive their refund of the input tax within the promised timeframe of 14 days.
This has resulted in higher working capital of the refineries being tied up.
“We gathered that based on an average size refinery of 1,000 tonnes per day that purchases 30,000 tonnes of CPO a month at RM2,000 per tonne, the additional working capital being tied up for 14 days is RM1.7mil.
CIMB Research also expected plans by plantation companies to add refining capacity in Sabah to reduce the bargaining power of refiners for feedstocks in selected locations over time.
Genting Plantations Bhd has announced plans to team up with Musim Mas Group to set up a 600,000-tonne per annum palm oil refinery in Lahad Datu, Sabah.
Mewah International added a new refinery in Lahad Datu, Sabah last year while Hap Seng Plantations Bhd has indicated interest in setting up a refinery in Sabah.
Levy impact: CIMB Research says the levy has led to concerns that Malaysian refiners would again be disadvantaged as they do not enjoy the same margin advantage of US30 per tonne since the export tax for both local CPO and processed palm products is currently zero.
PETALING JAYA: Local palm oil refiners are bracing to retain their refining margins in the coming months as their competitive advantage is expected to be affected by the new palm oil levy imposed by Indonesia in July.
CIMB Research said in its latest report that Indonesian refiners were regaining margin advantage as the new export levy had lowered the domestic crude palm oil (CPO) price by US$30 to US$50 per tonne, helping to improve the processing margins of downstream processors in the republic.
The research unit is slightly negative on the medium term prospects of the local refiners following its recent meeting with officials from the Palm Oil Refiners Association of Malaysia (Poram) saying that “local refiners are expected to face stiffer competition from Indonesian refiners with the new palm oil levy, if CPO stays below RM2,250 per tonne.”
Prior to this, there was no margin advantage for Indonesian refiners as the export tax for both palm products was zero as CPO price had been below US$750 per tonne since Oct 2014.
CIMB Research noted the levy had also led to concern that Malaysian refiners would again be disadvantaged as they do not enjoy the same margin advantage of US$30 per tonne since the export tax for both local CPO and processed palm products was currently zero.
This is because CPO price in Malaysia is below RM2,250 per tonne, the threshold price that triggers the export tax.
Meanwhile, Poram has also proposed for the Government to review the current Malaysian export duty structure following Indonesia’s introduction of new export levies.
Based on CIMB Research analysis, Malaysian refiners could be significantly less competitive relative to the Indonesian refiners when CPO price is below RM2,250.
“Should Malaysia revise its export tax to consider Indonesian CPO levies, it would be short-term negative for Malaysian palm oil producers as it could lead to lower domestic CPO prices.
“However, we think that the government is unlikely to implement this in the near term as it could weaken the already-low CPO price and reduce the incomes of the country’s palm oil smallholders,” added the research unit.
On top of the new Indonesian levy, the 6% goods and services tax (GST) imposed in April has also raised the local palm oil refineres’ cost of doing business as their cash flows are tied up in payment for GST input for at least 14 days.
A recent Poram survey revealed that 88% of the respondents did not receive their refund of the input tax within the promised timeframe of 14 days.
This has resulted in higher working capital of the refineries being tied up.
“We gathered that based on an average size refinery of 1,000 tonnes per day that purchases 30,000 tonnes of CPO a month at RM2,000 per tonne, the additional working capital being tied up for 14 days is RM1.7mil.
CIMB Research also expected plans by plantation companies to add refining capacity in Sabah to reduce the bargaining power of refiners for feedstocks in selected locations over time.
Genting Plantations Bhd has announced plans to team up with Musim Mas Group to set up a 600,000-tonne per annum palm oil refinery in Lahad Datu, Sabah.
Mewah International added a new refinery in Lahad Datu, Sabah last year while Hap Seng Plantations Bhd has indicated interest in setting up a refinery in Sabah.