MARKET DEVELOPMENT
Bump in CPO Exports Likely This Month
Bump in CPO Exports Likely This Month
16/03/2016 (The Star) - Crude palm oil (CPO) producers are set to ramp up exports this month ahead of the implementation of a 5% export tax in April, according to industry players.
This is because higher prices means that exports will likely remain taxable going forward due to industry requirements, impacting the margins of companies who derive the majority of their revenue base from CPO exports.
Reuters reported a government circular yesterday showed that Malaysia would set a tax of 5% on exports beginning next month following 11 months of zero duties in a bid to boost palm oil sales.
A senior executive of an integrated palm oil firm said that the reduction in margins from the export tax is partly offset by the strong recovery in CPO prices this year.
“CPO prices have also improved on a dollar basis given the stronger ringgit this year. The export tax makes the commodity cheaper for domestic use, which will help our refiners,” he said.
The mechanism for setting a tax rate for CPO is based on its settlement price. In Malaysia, export duties are implemented should CPO prices average above RM2,250 per tonne in one month.
The tax can range from 4.5% to 8.5% based on the average CPO prices. This means that the quantum of taxes will increase further should prices continue to break new highs.
CPO spot prices have rallied 14% this year based on the latest settlement price of RM2,516 per tonne on March 14, representing a two-year high.
Meanwhile, the benchmark third-month futures contract for June delivery closed at RM2,610 per tonne on the same day, which could point to higher prices ahead.
It is worth noting that the Government has held back on implementing the tax by one month. In February, settlement prices for CPO averaged RM2,430 per tonne, according to data by the Malaysian Palm Oil Board (MPOB).
“Companies have long expected the tax to come into force given the price range of CPO in recent months. The continuing squeeze in production due to El Nino will remain supportive of CPO prices despite the tax implementation,” says a plantations analyst for a bank-backed research house.
On the other hand, the analyst cautioned that upstream players would lose out in terms of earnings due to a compression in margins arising from the export duty. However, he does not believe consumption or overall sales to be affected due to the tax.
The El Nino phenomenon has already impacted numerous plantation sites in Sabah and Sarawak and Indonesia as evidenced by falling output in February. Production for the month amounted to 1.04 million tonnes, the lowest February output in nine years.
On the other hand, Malaysia’s share of CPO exports may be impacted. CIMB Research said in a recent note that the zero export tax in February helped boost CPO’s share of total Malaysian palm oil exports from 30% last year to a record high of 34% for the first two months of this year.
This is because higher prices means that exports will likely remain taxable going forward due to industry requirements, impacting the margins of companies who derive the majority of their revenue base from CPO exports.
Reuters reported a government circular yesterday showed that Malaysia would set a tax of 5% on exports beginning next month following 11 months of zero duties in a bid to boost palm oil sales.
A senior executive of an integrated palm oil firm said that the reduction in margins from the export tax is partly offset by the strong recovery in CPO prices this year.
“CPO prices have also improved on a dollar basis given the stronger ringgit this year. The export tax makes the commodity cheaper for domestic use, which will help our refiners,” he said.
The mechanism for setting a tax rate for CPO is based on its settlement price. In Malaysia, export duties are implemented should CPO prices average above RM2,250 per tonne in one month.
The tax can range from 4.5% to 8.5% based on the average CPO prices. This means that the quantum of taxes will increase further should prices continue to break new highs.
CPO spot prices have rallied 14% this year based on the latest settlement price of RM2,516 per tonne on March 14, representing a two-year high.
Meanwhile, the benchmark third-month futures contract for June delivery closed at RM2,610 per tonne on the same day, which could point to higher prices ahead.
It is worth noting that the Government has held back on implementing the tax by one month. In February, settlement prices for CPO averaged RM2,430 per tonne, according to data by the Malaysian Palm Oil Board (MPOB).
“Companies have long expected the tax to come into force given the price range of CPO in recent months. The continuing squeeze in production due to El Nino will remain supportive of CPO prices despite the tax implementation,” says a plantations analyst for a bank-backed research house.
On the other hand, the analyst cautioned that upstream players would lose out in terms of earnings due to a compression in margins arising from the export duty. However, he does not believe consumption or overall sales to be affected due to the tax.
The El Nino phenomenon has already impacted numerous plantation sites in Sabah and Sarawak and Indonesia as evidenced by falling output in February. Production for the month amounted to 1.04 million tonnes, the lowest February output in nine years.
On the other hand, Malaysia’s share of CPO exports may be impacted. CIMB Research said in a recent note that the zero export tax in February helped boost CPO’s share of total Malaysian palm oil exports from 30% last year to a record high of 34% for the first two months of this year.