10/04/2012 (The Star) - Local palm oil refiners have been waiting patiently for the past eight months for a rescue plan to counter the negative impact of Indonesia's palm oil export duty revision.

Sadly, the relevant authorities are still keeping mum on the mechanisms or measures to be formulated. Local refiners claim that they are being left in the dark as to how the Government will address this issue amicably.

At the same time, many are still hoping for a speedy solution either through a revision of the existing palm oil export duty policy or incentives to level the playing field for the local and Indonesian refiners.

The local crude palm oil (CPO) export duty has remained unchanged at 23% since the 1970s but Indonesia's CPO refined products export duties have have drastically slashed by more than half since last October, and it currently range from 3% to 20%.

Under the new duty structure, Indonesian refiners are said to be able to reap 5% to 8% higher profit margins compared with the traditional operating profit margins of Malaysian at 3% to 6%.

At current refining capacity and forecast CPO production of 19.36 million tonnes minus about three million tonnes for the CPO duty-free export quota this year, local palm oil refiners would only have an average refining capacity utilisation rate of 68%.

However, those with a capacity utilisation rate of less than 60%, will find it most difficult to sustain their operations under Indonesia's new export duty structure.

Last year, the average refining margin was only 1.4%, or RM45.14 to the cost of CPO of RM3,286 on per tonne basis. But starting early this year, the margins are in negative territory at minus RM18.81 in January and minus RM18.66 per tonne of CPO in February.

CIMB Investment Bank, in its latest report, expects players with refining facilities in Malaysia like Wilmar, Mewah Group, IOI Corp Bhd, KL Kepong Bhd and Sime Darby Bhd to see weaker refining margins in the second half of this year unless a policy to help the local downstream industry is introduced.

To plough back some of the cost advantage against their peers in Indonesia, CIMB said these refiners may also be under pressure to improve their purchasing of feedstocks by taking some trading positions.

In the meantime, Malaysia is also set to face difficulties in attracting new investments in its refining sector vis-a-vis Indonesia.

Some refiners have cited their intention to either shift or invest more in Indonesia's refining sector to take advantage of the lower-priced CPO feedstock.

Mewah International Inc, Malaysia's biggest palm oil refiner after Wilmar is said to be pushing for the setting up of a US$145mil refinery in Indonesia, while delaying its earlier plan for a palm oil refinery in Sabah.

KL Kepong also announced plans to build three refineries in Indonesia to capture more favourable selling prices for its palm oil produced from Indonesia.