MARKET DEVELOPMENT
Shot in The Arm For CPO Downstream Segment
Shot in The Arm For CPO Downstream Segment
17/03/2016 (The Star) - The implementation of a 5% tax on crude palm oil (CPO) exports starting April will boost the prospects of downstream segment players domestically as their cost competitiveness would increase relative to their Indonesian counterparts, say analysts.
This comes after the Government decided to bring back the export duties following the sharp rise in CPO prices this year.
Under an existing mechanism, CPO exports are taxable should average monthly prices amount to more than RM2,250 per tonne.
“We expect Malaysia’s exports for processed palm oil products to increase as the tax is expected to improve the competitiveness of Malaysia’s downstream products.
“Additionally, we are positive on the sector premised on our view that CPO prices should rise to RM3,000 per tonne in the second quarter (2Q16),” said MIDF Research in a note.
On the other hand, the tax estimated at RM125 per tonne was still lower than Indonesia’s US$50 (RM206.50) per tonne levy on the country’s CPO exports, the research house added.
The tax range is between 4.5% and 8.5% based on how high CPO prices are heading up.
This means that higher duties will be imposed should CPO prices, which are currently trading near a two-year high, continue to climb.
Should prices rise above RM3,000 per tonne as forecast by MIDF, the export duty would amount to 7%, according to Malaysian Palm Oil Board (MPOB) data.
Indonesia’s refiners have long enjoyed an advantage over Malaysian downstream players due to the former’s high levy for exports, which encouraged domestic consumption instead.
Additionally, part of the taxes are used to directly subsidise Indonesian refiners as well as for funding its biodiesel initiatives.
With Malaysia’s export duty in place, domestic refining of CPO may be spurred by cheaper local prices. In turn, this will allow refiners to ramp up their utilisation rates should demand picks up, thus boosting their overall revenue base.
Malaysia had previously exported 87% of its palm oil output in 2015, while the share of CPO exports grew to a record high of 34% over the first two months of this year due to the zero tax policy that has been in effect over the past 11 months.
“Taking into account the lower transport costs in Malaysia compared to Indonesia, we expect Malaysian refiners to be more competitive in April in processed palm oil exports,” said CIMB Research in a note.
The research house added that pure planters such as Hap Seng Plantations Bhd and Genting Plantations Bhd would be hit the most due to the lower domestic prices for CPO which excludes the tax.
Meanwhile, PublicInvest Research anticipates CPO prices to head upward in anticipation of improved export volumes, coupled with weaker production in the coming months.
“We expect CPO prices to fare better this year and trade above RM2,800 per tonne once inventories fall below the two-million-tonnes psychological level,” it said.
This comes after the Government decided to bring back the export duties following the sharp rise in CPO prices this year.
Under an existing mechanism, CPO exports are taxable should average monthly prices amount to more than RM2,250 per tonne.
“We expect Malaysia’s exports for processed palm oil products to increase as the tax is expected to improve the competitiveness of Malaysia’s downstream products.
“Additionally, we are positive on the sector premised on our view that CPO prices should rise to RM3,000 per tonne in the second quarter (2Q16),” said MIDF Research in a note.
On the other hand, the tax estimated at RM125 per tonne was still lower than Indonesia’s US$50 (RM206.50) per tonne levy on the country’s CPO exports, the research house added.
The tax range is between 4.5% and 8.5% based on how high CPO prices are heading up.
This means that higher duties will be imposed should CPO prices, which are currently trading near a two-year high, continue to climb.
Should prices rise above RM3,000 per tonne as forecast by MIDF, the export duty would amount to 7%, according to Malaysian Palm Oil Board (MPOB) data.
Indonesia’s refiners have long enjoyed an advantage over Malaysian downstream players due to the former’s high levy for exports, which encouraged domestic consumption instead.
Additionally, part of the taxes are used to directly subsidise Indonesian refiners as well as for funding its biodiesel initiatives.
With Malaysia’s export duty in place, domestic refining of CPO may be spurred by cheaper local prices. In turn, this will allow refiners to ramp up their utilisation rates should demand picks up, thus boosting their overall revenue base.
Malaysia had previously exported 87% of its palm oil output in 2015, while the share of CPO exports grew to a record high of 34% over the first two months of this year due to the zero tax policy that has been in effect over the past 11 months.
“Taking into account the lower transport costs in Malaysia compared to Indonesia, we expect Malaysian refiners to be more competitive in April in processed palm oil exports,” said CIMB Research in a note.
The research house added that pure planters such as Hap Seng Plantations Bhd and Genting Plantations Bhd would be hit the most due to the lower domestic prices for CPO which excludes the tax.
Meanwhile, PublicInvest Research anticipates CPO prices to head upward in anticipation of improved export volumes, coupled with weaker production in the coming months.
“We expect CPO prices to fare better this year and trade above RM2,800 per tonne once inventories fall below the two-million-tonnes psychological level,” it said.