MARKET DEVELOPMENT
Indonesia May Revive Palm Oil Export Levy, Says Oil World
Indonesia May Revive Palm Oil Export Levy, Says Oil World
18/03/2015 (AgriMoney.com) - Indonesia, the top palm oil producer and shipper, may follow main rival Malaysia and reintroduce an export tax on crude palm oil, Oil World cautioned.
Malaysia on Monday revealed that it would in April reintroduce an export tax on crude palm oil, at a rate of 4.5%, since when futures in the vegetable oil have tumbled by nearly 5% in Kuala Lumpur on ideas of reduced demand.
"Indonesia may follow the example of Malaysia and reintroduce the export tax on crude palm oil soon", Oil World said.
Crude vs processed
Such a move would stem Indonesia's chance of boosting its share of the market for crude palm oil at Malaysia's expense.
However, it would reduce the risk of Malaysia stealing a march in processed palm oil products, an industry which has been hampered in both countries by the greater volumes of crude palm oil heading abroad.
While Malaysian exports of crude palm oil have risen by 21% since it ditched its export levy in September, shipments of processed palm oil have fallen by 15%.
The reintroduction by Indonesia of a levy on crude palm oil shipments would allow "its refining industry to compete on a level playing field with their Malaysian counterparts", Oil World said.
'Lower the threshold'
An Indonesian levy rise would likely be implemented by altering the target crude palm oil price above which the export duty kicks in, Oil World said.
"Indonesia imposes an export tax on crude palm oil if world market prices exceed $ 750 a tonne, but in recent days prices in Rotterdam were below this benchmark at only around $660 a tonne," the analysis group said.
"There is now speculation that the Indonesian government may lower the threshold for the export tax."
Soyoil premium to narrow
The report highlighted other threat to crude palm oil prices, warning that its discount to soyoil was likely to narrow even further.
"Soyoil fell victim to the weakening energy markets yesterday, thus staying only at a small premium relative to palm oil," a dynamic which "bodes well for a substitution of demand in favour of soyoil in a number of key vegetable oil-importing countries," Oil World said.
"From the fundamental perspective we consider it likely that soyoil prices will underperform those of palm oil" in the March-to-June period.
Vegetable oils are linked to oil markets, which fell to a six-year low on Monday, through their use in making biodiesel.
'Virtually non-existent enforcement'
There was some supportive news on biodiesel from Indonesia, where the government is moving to increase the compulsory blending rate of biodiesel into the fuel supply to 15% from 10%, in a measure intended to support palm oil prices and cut the bill for fossil fuels.
However, Oil World downplayed the significance of this news, noting that "considering the virtually non-existent enforcement" of Indonesia's existing biofuels targets, "the market largely ignored this input".
Malaysia on Monday revealed that it would in April reintroduce an export tax on crude palm oil, at a rate of 4.5%, since when futures in the vegetable oil have tumbled by nearly 5% in Kuala Lumpur on ideas of reduced demand.
"Indonesia may follow the example of Malaysia and reintroduce the export tax on crude palm oil soon", Oil World said.
Crude vs processed
Such a move would stem Indonesia's chance of boosting its share of the market for crude palm oil at Malaysia's expense.
However, it would reduce the risk of Malaysia stealing a march in processed palm oil products, an industry which has been hampered in both countries by the greater volumes of crude palm oil heading abroad.
While Malaysian exports of crude palm oil have risen by 21% since it ditched its export levy in September, shipments of processed palm oil have fallen by 15%.
The reintroduction by Indonesia of a levy on crude palm oil shipments would allow "its refining industry to compete on a level playing field with their Malaysian counterparts", Oil World said.
'Lower the threshold'
An Indonesian levy rise would likely be implemented by altering the target crude palm oil price above which the export duty kicks in, Oil World said.
"Indonesia imposes an export tax on crude palm oil if world market prices exceed $ 750 a tonne, but in recent days prices in Rotterdam were below this benchmark at only around $660 a tonne," the analysis group said.
"There is now speculation that the Indonesian government may lower the threshold for the export tax."
Soyoil premium to narrow
The report highlighted other threat to crude palm oil prices, warning that its discount to soyoil was likely to narrow even further.
"Soyoil fell victim to the weakening energy markets yesterday, thus staying only at a small premium relative to palm oil," a dynamic which "bodes well for a substitution of demand in favour of soyoil in a number of key vegetable oil-importing countries," Oil World said.
"From the fundamental perspective we consider it likely that soyoil prices will underperform those of palm oil" in the March-to-June period.
Vegetable oils are linked to oil markets, which fell to a six-year low on Monday, through their use in making biodiesel.
'Virtually non-existent enforcement'
There was some supportive news on biodiesel from Indonesia, where the government is moving to increase the compulsory blending rate of biodiesel into the fuel supply to 15% from 10%, in a measure intended to support palm oil prices and cut the bill for fossil fuels.
However, Oil World downplayed the significance of this news, noting that "considering the virtually non-existent enforcement" of Indonesia's existing biofuels targets, "the market largely ignored this input".