Resumption of CPO export duties could hurt demand

by SHAHEERA AZNAM SHAH / Pic by TMR FILE PIX

THE government’s plan to resume the crude palm oil (CPO) export tax at the highest rate of 8% in January 2021 will adversely impact pure upstream players as it will curb demand for the vegetable oil.

Public Investment Bank Bhd (PublicInvest Research) analyst Chong Hoe Leong in a note yesterday said the resumption of the export tax will cut margins for upstream players although the impact is thought to be less severe for integrated players.

“Resumption of the palm oil export duty will see a cut in upstream plantation margins. Based on the latest Malaysian Palm Oil Board (MPOB) CPO price of RM3,651 per tonne, an 8% export duty will translate into RM292 per tonne.

“Nevertheless, it will still be a good level for the plantation companies as the realised CPO price is still above RM3,000 per tonne.

“On the other hand, it will be a relief for refiners and downstream players as it narrows the gap with their Indonesian counterparts,” Chong said.

Malaysia zeroed its CPO export duty from 4.5% for June, which was then extended until year-end to boost palm oil export, particularly to India, which had cut its imports of refined palm oil from Malaysia.

However, the duties have been raised to 8% for January next year based on the CPO market price of RM3,450 per tonne and above. The rate will be effective from Jan 1 until Jan 31, 2021.

“The 8% tax is slightly negative for CPO prices as it will curb palm oil demand from Malaysia.

“It will also narrow the gap between Malaysian and Indonesian CPO price to about RM570 per tonne from RM862 per tonne, making it a more competitive playing field for Indonesia,” Chong said.

PublicInvest Research expects the reimplementation of the duties after six months of exemption would create a surge in demand in December as it attracts significant savings.

“We believe palm oil importers will rush for more imports from Malaysia ahead of the resumption of export duty as it attracts significant savings.

“Between Dec 1 and Dec 12, Malaysian palm oil exports rose 12% month-on-month (MoM) as shipments to India and the European Union rose 57% and 17% respectively,” Chong said, adding that the top two producing countries — Malaysia and Indonesia — are expected to produce a higher palm oil output next year.

“Indonesia’s Oil Palm Plantations Fund Management Agency projects that the palm oil output is set to rise from 26.74 million tonnes to 27.36 million tonnes in 2021.

“The agency has disbursed 25.67 trillion rupiah (RM7.3 billion) worth of incentive funds for 7.43 million kiloliters as of now. Export levy collection this year is seen at 17 trillion rupiah to 18 trillion rupiah.

“Meanwhile, domestic palm oil consumption is seen at 10.82 million tonnes in 2020 and 11.23 million tonnes in 2021,” he added.

Chong said the government is also embarking on a replanting programme of 500,000ha of oil palm plantations in the next three years to reach 56.84 million tonnes of CPO production by 2030.

PublicInvest Research recommended a ‘Neutral’ rating for the sector, with Sarawak Plantation Bhd and Ta Ann Holdings Bhd as its top picks.