KUCHING: Analysts peg the move by Indonesian President Joko Widodo to regulate exporters to pay a levy on crude palm oil (CPO) and processed palm oil product shipments as short term negative for Malaysian planters with operations in Indonesia, more so those which has yet to set up refining and oleochemical plants.
To note, the levy of US$50 per tonne of crude palm oil (CPO) and US$30 for processed palm oil product shipments which is expected to be put in place by late-May.
Researchers with Maybank Investment Bank Bhd (Maybank IB Research) said once implemented, this new export levy is short term negative for the purer upstream players with operations in Indonesia as it will shave off US$50 per tonne from the planters’ top line for every tonne of CPO they produce.
“Our recent channel checks with industry players suggest that upstream planters have started to receive lower CPO proceeds from traders/downstream players since this export levy proposal were first put forward in early-April 2015,” it highlighted in its note.
“Integrated players will be less affected relative to the purer upstream players as the export tax levy differentials will help boost downstream margins.”
Nonetheless, Maybank IB Research believed the government’s ultimate aim was not to “punish” upstream planters but to boost Indonesia’s domestic biodiesel consumption to 4.8 million metric tonnes over time, to reduce stockpile and ultimately to boost CPO price.
“We believe the recent stock price correction in Indonesia may have largely priced in this new export levy.
“Over the medium term, we believe Indonesia’s ambitious B15 programme could be positive for CPO price if well implemented. But thus far, Indonesia’s execution track record has been poor.”
TA Securities Holdings Bhd (TA Research) in a separate note yesterday said what surprised the group was that the tax amount had been maintained at US$50 per tonne despite an intense lobby to reduce it.
“That partly reflects Indonesian’s government to support the biodiesel mandate, in our view,” it said. “Based on the US$750 million per annum collection, and assuming that a similar 4,000 rupiah litre subsidy is being extended to the non-public sector obligations segments, we estimate tax collected to subsidise about 2.2 millionn tonnes of biodiesel.
“That will be a significant boost to biodiesel consumption in the country, which amounted to less than two million tonnes for the whole of 2014.”
Analysts at Affin Hwang Investment Bank Bhd (Affin Hwang Capital) said CPO average realised selling prices in Indonesia may decline by as much as nine per cent for pure upstream players and as much as five per cent for downstream players.
“In the longer term, higher subsidies contributing to higher biodiesel production and demand are expected to cut inventories and therefore boost CPO prices and plantation profits.
“We expect investors to closely monitor progress in Indonesian production after the levy is imposed to fund higher biodiesel subsidies. Accelerated achievement of biodiesel mandates will be positive for CPO price, which has also firmed lately as the soybean oil premium widen and crude oil price recovers.”