- According to recent news reports, Malaysia will allow
exports of crude palm oil at zero duty for another month in February. “The tax
for this coming month will still be zero,” Plantation Industries and
Commodities Minister Bernard Dompok said.
- The zero export duty will encourage more exports of palm
oil in crude form. This would benefit countries like India, which have palm oil
refineries.
- In mid-2012, India increased the base price of refined
palm olein for the calculation of import duties, for the first time in years.
The increase in base price was meant to encourage switching from refined palm
oil to crude. The base price is reviewed every two weeks.
- The zero export duty would also support CPO exports to
China. Recall that China’s new import guidelines are in respect of refined palm
oil and not CPO. This means that buyers could buy crude palm oil and then
refine it in the country. Companies with palm oil refinery in China include
Golden Agri Resources, which has a refining capacity of 776,000 tonnes/year.
- In spite of this, we believe that most of China’s imports
of palm oil would still be in the form of refined. We reckon that palm oil
refining capacity is not large in China yet due to the cold weather.
- Hence, the zero export duty for CPO for February in
Malaysia is expected to be a temporary relief measure, which would help boost
exports. It is a matter of time before the export duty increases.
- Recently, it was also reported that there is lobbying for
the Indonesian government to reduce the country’s export tax rate for CPO to
zero. We believe that if the CPO export duty rate were to be zero in Indonesia,
then this would be positive for Malaysian refiners.
- This is because the cost of CPO would increase in
Indonesia, benefiting the upstream players in the country at the expense of the
refiners.
- Malaysian refiners would have a more equal playing field
with their Indonesian refiners in terms of cost advantage.
- We maintain our positive stance on the plantation sector.
The recent rise in soybean and soybean oil prices is expected to support CPO
prices.
Source: AmeSecurities
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