05.07.2021 (www.thestar.com.my) - PETALING JAYA: The latest palm oil export tax revisions by India and Indonesia are deemed as favourable for the plantation sector, say analysts.

On June 30, India, the world’s largest edible oil importer, cut its palm oil taxes, bringing it down to 27.5% from 32.5% previously.

Indonesia, the world’s largest palm oil producer, effective last Friday slashed the ceiling rate for its crude palm oil (CPO) levies to US$175 (RM728.6) per tonne from US$255 (RM1, 061.70) per tonne earlier.

Given these developments, Maybank Investment Bank (Maybank IB) Research is positive on the plantation sector.

On the palm oil export tax revision in India, the research house said: “We understand this new ruling will be effective from June 30 till Sept 30 to help tame domestic inflation in the country.”

The import duty on RBD (refined, bleached and deodorised) palm oil and olein in India have also been lowered to 37.5% from 45% earlier.

But since the import of RBD palm oil and olein are still restricted by India since January last year, the reduction in these duties will not have any impact on the demand for refined products.

Maybank IB said in its latest report that in general, CPO will benefit at the expense of other imported oils.

“We expect to see a bigger import of CPO by India in these three months even though India has recently rebuilt its inventories with a stockpile at 1.96 million tonnes, up by 107% year-on-year as at June 1, ” it added.

As for Indonesia’s newly revised palm oil export levy, Maybank IB opined that both Indonesian upstream and integrated players, including Malaysian planters with operations in the republic, will benefit from the latest move.

“By our estimate, the proposed export tax will raise the net increment receipts of upstream planters by US$5-US$80 (RM20.82-RM333.08) per tonne while integrated planters by US$5-US$72 (RM20.82-US$299.8) per tonne when CPO price trades between US$695 (RM2, 893.6) to US$1, 020 (RM4, 246.8) per tonne.”

For instance, at the present CPO price of RM3, 721 per tonne, the incremental net receipt is estimated at US$60 (RM249.81), about 8.9% increment to the existing revenue.

“But, at our 2021 CPO average selling price (ASP) forecast of RM3, 100 per tonne, the revenue increment will be US$30 (RM124.90) per tonne or 4.5%.

“As for our 2022 CPO ASP forecast of RM2, 600 per tonne, there will be no impact to revenue or profitability, ” added the research house.

Overall, Maybank IB noted that Indonesian upstream and integrated players will enjoy higher net receipts from lower export levies as long as CPO price stays lofty.

The beneficiaries from Indonesia’s new palm oil export tax include international planters such as First Resources Ltd, Bumitama Agri Ltd and Wilmar International Ltd.

Other beneficiaries include local planters with operations in Indonesia such as TSH Resources Bhd, Genting Plantations Bhd, Kuala Lumpur Kepong Bhd and Sime Darby Plantation Bhd, given their sizable exposure in the republic.

Meanwhile, CGS-CIMB Research in its latest report pointed out that “the new Indonesia export levy structure is less punitive for CPO producers in Indonesia, as the export levy will rise only when CPO price rises to over US$750 (RM3, 122.62) per tonne versus US$670 (RM2, 789.54) previously.”

The rate of levy increase is now less at US$20 (RM83.27) per tonne increase for every US$50 (RM208.18) per tonne rise for CPO.

CGS-CIMB also said the new tax levy structure would lead to savings of up to US$80 (RM333.08) per tonne for CPO producers in Indonesia.

However, it is unclear if planters can fully enjoy these savings or will need to share it with consumers through lower international CPO prices, added the research house.

This is also reflected in Indonesia’s CPO price discount against Malaysia’s CPO price which peaked at US$334.5 (RM1, 392.69) per tonne on May 10 and has narrowed further to US$225.8 (RM940.12) per tonne on June 29.

On the local front, CGS-CIMB noted that the upstream palm oil producers in Malaysia are likely to be negatively impacted by the export levy changes in Indonesia as “Malaysian CPO price tracks lower with the impending cut in Indonesia export levy.”

Spot CPO price in Malaysia peaked at RM4, 774 per tonne on May 18 and has since fallen 21% to RM3, 728 per tonne on June 29.

However, the research house said Malaysia will remain more competitive versus Indonesia in exporting CPO under the new export levy regime.

“The ceiling export tax rate in Malaysia CPO of 8% is lower than Indonesia’s combined export tax and levy (ranging from around 7% to 29% of the reference CPO prices).

On the other hand, the revised export levy structure will reduce the advantage of Indonesian palm oil downstream producers over Malaysian palm oil downstream producers due to the lower CPO export levy.