Analysts affirm urgent need to resolve delay in palm oil quotas
by Ronnie Teo, ronnieteo@theborneopost.com. Posted on February 4, 2012, Saturday
SHORT TERM EFFECT: The MIDF Research analyst believes any delay in the decision will further hurt Malaysian refiners and is expected to have a short-term negative effect to the palm oil industry in general.
KUCHING: Malaysia’s delay in issuing quotas to export crude palm oil (CPO) without taxes for 2012 will leave a short-term negative impact on the industry should the government not come to a decision on the matter quickly.
According to the plantations analyst from the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), there was a great need for the government to urgently rescue the industry players not only the downstream players but also upstream players.
“Any delay in the decision will further hurt Malaysian refiners and is expected to have a short-term negative effect to the palm oil industry in general,” she told The Borneo Post in a telephone interview.
“There is a potential shift to Indonesian CPO as it can offer cheaper CPO price.
“We are maintaining our neutral view on the sector as we are expecting further retracement in the price moving forward mainly due to the better projected output and uncertainty in the global vegetable oils market.”
Another analyst from a local research house also believed there was a need to push this matter urgently as this was heavily affecting refinery companies in the downstream segment.
As the country drafted the policy to counter competition from top supplier Indonesia, which slashed its export taxes for refined oil, the MIDF Research analyst said Malaysian downstream players were currently affected badly by Indonesia’s palm oil export tax structure.
“Indonesia’s new tax structure allows domestic refiners to enjoy five to eight per cent higher profit margin as compared with three to six per cent profit margin realised by Malaysian refiners,” she added.
“Indonesia maintained its 15 per cent export tax of its CPO and reduced the tax on refined products to seven per cent from 15 per cent previously.
“Malaysia does not tax its refined products. However, its effective export tax on CPO is around 18 per cent to 23 per cent.”
In response to this, Malaysia’s Plantation Industries and Commodities Ministry made two proposals, she highlighted, the first of which was to establish an Industry Adjustment Fund (IAF).
“It would be generated from a new cess to be collected from upstream players.
“However, the proposed plan for IAF was strongly being opposed by Malaysian Palm Oil Association and Malaysian Estate Owners Association,” she said.
A fallback plan for the industry, added the MIDF Research analyst, included several measures such as maintaining the export duty on CPO and crude palm kernel oil (CPKO); lowering duties on semi-finished palm oil products to prevent leakage; the abolition of duty-free export quota for CPO and CPKO; and an indirect assistance to smallholders to offset any reduction in prices of fresh fruit bunches.
Additionally, the research team at Kenanga Investment Bank Bhd (Kenanga Research) in a research report yesterday affirmed that Indonesia would lead the CPO consumption growth in Asia as it had surpassed China’s consumption level in 2011.
“We expect this trend to register the strongest growth of 12.5 per cent year-on-year (y-o-y) in Asia, well ahead of China’s 9.3 per cent and India’s 4.4 per cent,” noted the Kenanga Research team.
“This is mainly due to the higher food demand from the country’s population of about 240 million as well as an expansion in its domestic biodiesel production, which is mainly earmarked for the export market.”
