Plantation Sector - Indonesia announces new export tax rates for Jan 2013 OVERWEIGHT

- Recently, the Indonesian government announced that the export tax rate for CPO will be reduced from 9% in December 2012 to 7.5% in January 2013. 

- The base price for CPO for the calculation of the tax will also be revised downwards from US$754/tonne in December 2012 to US$709/tonne in January 2013.  

- For refined palm olein, the export tax rate has been adjusted from 3% on a base price of US$805/tonne in December 2012 to 2% on a base price of US$773/tonne in January 2013.

- The Indonesian government revises its export tax rate system monthly based on price trends in Jakarta, Amsterdam and Kuala Lumpur.

- Based on the latest export tax rates, it would appear that the Indonesian palm oil refiners have a cost advantage of RM115/tonne compared with their Malaysian counterparts.

- However, we believe that the cost advantage is smaller at RM15/tonne due to the discount to CPO price of RM100/tonne imposed by the refiners in Sabah on upstream players.     

- Upstream players in Sabah can choose to export if they do not want to suffer the RM100/tonne discount to CPO price. 

- Generally, plantation companies in Malaysia have an advantage over their Indonesian peers as they do not have to pay export tax in January 2013. In contrast, plantation companies in Indonesia would face an export tax rate of 7.5% if they were to sell overseas.  

- Upstream players in Malaysia might also have another edge. According to MPOB (Malaysian Palm Oil Board) in December 2012, about 95% of the country’s palm cooking oil shipments to China meets the latter’s quality control specifications. Recall that China has imposed stricter import guidelines for cooking oil since 1 January 2013.    

- Upstream players in Malaysia may not enjoy the tax-free benefit for long as CPO prices have rebounded to RM2,400/tonne. 

- Based on prices since 10 December 2012, CPO has averaged RM2,264/tonne. This means that CPO exports may be taxed at a rate of 4.5% in February 2013. 

- We maintain a positive stance on the plantation sector as slowing palm oil production in the coming months is expected to cushion a rise in palm oil inventory. 

Source: AmeSecurities