THE BUZZ
Malaysia will reduce export duty for crude palm oil (CPO) and abolish duty-free export quota from 1 Jan 2013. The new export duty will range from 4.5% for CPO priced at RM2,250 per tonne, to 8.5% for CPO priced at RM3,600. For CPO price below RM2,250 per tonne, export duty will be zero.
OUR TAKE
Market gives thumbs up. The CPO futures market reacted positively to the announcement, recovering from its Friday low of RM2,379 to end the week at RM2,500. The new export duty scale was significantly better than the 8 – 10% mentioned before. We are of the opinion that the sliding scale for export duty makes sense as it will encourage more CPO exports if prices are low, thus helping to keep the ballooning inventory in check. However, we believe the new export duty should have taken immediate effect as the palm oil inventory is already at record high levels.
Possible B10 implementation. Malaysia will also implement a nationwide biodiesel programme by January 2013, using a 5% blend which will use up 500k tonnes of palm oil. The government is also studying the possibility of implementing a B10 programme (10% blend), which will use up an additional 300k tonnes of palm oil. Malaysia is said to have some 2.7m tonnes per annum of biodiesel capacity, hence there is ample excess capacity should the government decide to raise the blend level.
Plenty of room to narrow soy oil discount. The current near record spread between soybean oil and palm oil stems from the tight soybean supply and ample palm oil supply. If the government’s measures are successful in reducing palm oil inventory and
stabilising its prices, the spread should return to the normal range. Assuming a USD200 per tonne discount to soybean oil, the CPO price will recover by some RM500 per tonne i.e. prices to recover to RM3,000 per tonne.
Maintain Overweight. We are reiterating our Overweight call on the sector as we believe the measures will be effective in reducing palm oil inventory and stabilising prices over the long term, assuming proper implementation and execution.
Malaysia will reduce export duty for crude palm oil (CPO) and abolish duty-free export quota from 1 Jan 2013. The new export duty will range from 4.5% for CPO priced at RM2,250 per tonne, to 8.5% for CPO priced at RM3,600. For CPO price below RM2,250 per tonne, export duty will be zero.
OUR TAKE
Market gives thumbs up. The CPO futures market reacted positively to the announcement, recovering from its Friday low of RM2,379 to end the week at RM2,500. The new export duty scale was significantly better than the 8 – 10% mentioned before. We are of the opinion that the sliding scale for export duty makes sense as it will encourage more CPO exports if prices are low, thus helping to keep the ballooning inventory in check. However, we believe the new export duty should have taken immediate effect as the palm oil inventory is already at record high levels.
Possible B10 implementation. Malaysia will also implement a nationwide biodiesel programme by January 2013, using a 5% blend which will use up 500k tonnes of palm oil. The government is also studying the possibility of implementing a B10 programme (10% blend), which will use up an additional 300k tonnes of palm oil. Malaysia is said to have some 2.7m tonnes per annum of biodiesel capacity, hence there is ample excess capacity should the government decide to raise the blend level.
Plenty of room to narrow soy oil discount. The current near record spread between soybean oil and palm oil stems from the tight soybean supply and ample palm oil supply. If the government’s measures are successful in reducing palm oil inventory and
stabilising its prices, the spread should return to the normal range. Assuming a USD200 per tonne discount to soybean oil, the CPO price will recover by some RM500 per tonne i.e. prices to recover to RM3,000 per tonne.
Maintain Overweight. We are reiterating our Overweight call on the sector as we believe the measures will be effective in reducing palm oil inventory and stabilising prices over the long term, assuming proper implementation and execution.
Source: OSK
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