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PORAM: Review Malaysia’s CPO export duties to level playing field with Indonesia

August 2, 2018
in Business, Economy, Featured, Indonesia News, Malaysia, News
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KUALA LUMPUR: Malaysia should quickly review the current crude palm oil (CPO) export duty structure to level the playing field with that of Indonesia’s, if the new government’s is committed to encouraging more value-added downstream businesses and raise the country’s exports.

Palm Oil Refiners Association of Malaysia (Poram) chief executive officer Teoh Beng Chuan said since Malaysia’s CPO export duty structure is not competitive with Indonesia’s, refiners in Malaysia is facing an unlevel playing field for more than three years, with palm oil prices sliding to subdued levels.

“Manufacturers of cooking oil, oleochemical, specialty fats and biodiesel producers here are facing unfair competition in the export market and losing market share since Malaysia’s CPO export duty structure is not competitive with that of Indonesia.

“Currently, there is a structural price difference of US$20 to US$30 per tonne for the same products exported out from Malaysia and Indonesia.

“Logically, buyers would buy the cheaper-priced for the same quality. That’s why Malaysia’s is losing market share,” Teoh said on the sidelines of Market Forum 2018 organised by the Malaysian Palm Oil Council here yesterday.

Currently, the CPO export duty structure fluctuates on a monthly basis at between 4.5 and 8.5 per cent. If palm oil prices hover between RM2,250 and RM2,400 a tonne, the tax is 4.5 per cent. If the prices are between RM2,550 and RM2,700 a tonne, planters will be taxed 5.5 per cent.

The Poram chief assured that exports of refined palm oil, however, were not taxed.

In the last three years, the global benchmark pricing for palm oil on Bursa Malaysia’s Derivatives Market dropped by some 25 per cent from RM3,000 per tonne to an average of RM2,200.

At press time today, the third month palm oil futures traded RM13 higher at RM2,225 per tonne.

“We urge the government to quickly amend Malaysia’s CPO export duty structure to level the playing field with that of Indonesia.

“Once this is set in place, refiners here would stand a better chance to buy up more CPO and reduce the current high stock levels in the country,” he told the New Straits Times Press in an interview.

“This will spur refining activities and players would be able to reap economies of scale and make some money to stay in the business,” he added.

In July 2015, the Indonesia implemented a new export levy of between US$10 and US$50 per tonne for various palm oil products. This is on top of the revised export taxes that Indonesian palm oil producers are required to pay when CPO prices exceed US$750 per tonne.

This export levy lowered the domestic CPO price in Indonesia by between US$30 and US$50 per tonne, fattening profit margins of refiners in Indonesia.

So, for the past three years stakeholders throughout the palm oil value chain in Malaysia had been suffering from dampened pricing.

Partnerships between millers and refiners in Malaysia suffer as refiners face razor thin margin and even bled losses, for every tonne of CPO refined.

Teoh explained that refiners had no choice but to unwind contracts, which then was slowing down purchases and caused build-up of CPO inventories.

This, in turn, dragged CPO and crude palm kernel oil prices, hurting oil palm fruit sales by planters in Indonesia and Malaysia.

With cheap CPO and low duty export for cooking oil, margarine and oleochemicals, Indonesian exporters are selling their products at cheaper pricing, thus grabbing global market share from refiners in Malaysia.

When Indonesia changed its palm oil tax structure in October 2011, Malaysia took a ‘wait-and-see’ approach for 14 months. It was reported the local palm oil industry suffered an estimated RM9 billion loss in export revenue then.

Teoh urged the Malaysian government to be vigilant, as this is the second time of delayed action. “The new government must take a more dynamic approach. Our appeal is now more than three years overdue.”

“We cannot afford to repeat the mistake of staying on the sidelines when Indonesia changed its palm oil tax structure in October 2011 and then, in July 2015.

“By finetuning Malaysia’s CPO export duty to be competitive with Indonesia’s overall palm oil tax regime, refiners here can at least stand a chance to compete, based on existing infrastructure and plant efficiency,” he said.

As long as the CPO export duty structure in Malaysia was not on par with the overall palm oil tax regime in Indonesia, Teoh said palm oil prices would continue to slide and palm oil exporters from Malaysia lose out in the global market share.

Source :

www.nst.com.my

Tags: businessEconomyIndonesia NewsMalaysiaPalm Oil
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