Plantation Sector - Indonesia increases export tax rates for palm oil OVERWEIGHT

- Indonesia has increased the export tax rate for CPO from 7.5% to 9% for the month of February. The country has also increased the export tax rate for refined palm olein from 2% to 3%. 

- The increase in the export tax rate is in line with the improvement in palm oil prices. The Indonesian Government reviews the tax rates monthly in accordance to prices in Jakarta, Kuala Lumpur and Rotterdam.

- It appears that the Indonesian Government has not succumbed to pressure from GAPKI (Indonesian Palm Oil Association) to reduce the export tax rate for CPO to zero. 

- Recently, it was reported that GAPKI is seeking to reduce the CPO export tax rate in response to Malaysia’s zero CPO export tax rate in February.  

- It also appears that the Indonesian Government has chosen to assist the palm oil refiners instead of the upstream players in the country. 

- The reduction of the CPO export tax rate would have resulted in higher cost of feedstock

for the Indonesian refiners. 

- This would have reduced their cost competitiveness  against the Malaysian palm oil refiners.

- Based on the current export tax rates, it looks like that Malaysia would have the advantage of exporting palm oil in crude form.    

- Also, the Indonesian palm oil refiners would have a cost advantage of US$43.32/tonne or RM131/tonne against the Malaysian palm oil refiners.

- However after factoring in the discount to spot prices implemented by the refiners in Sabah, then the cost advantage of the Indonesian palm oil refiners is smaller at RM31/tonne.

- We maintain a positive stance on the plantation sector. We believe that CPO prices would improve underpinned by softening palm oil production and favourable demand.  

Source: AmeSecurities