Indonesia palm oil levy to kick in at US$570/T — finance ministry

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JAKARTA (Dec 5): Indonesia has eased rules on palm oil levies and derivative products following a drop in prices, according to a finance ministry regulation on a government website on Wednesday, an effort to make the nation's palm oil exports more competitive.

The world's top exporter of palm oil will not collect levies from palm exporters when prices are below a threshold of US$570 per tonne, but will charge US$10-US$25 a tonne, once prices are in a range of US$570-US$619 per tonne. The levy will rise to US$20-US$50, when prices hit above US$619 per tonne.

Under the previous rules for levies, exporters paid US$20-US$50 per tonne regardless of palm price levels. The government expects that by lowering the levies, Indonesian exporters can set more competitive prices for palm oil shipments, and that in turn will help local palm farmers.

Indonesia also imposes export taxes on crude palm oil when the reference price is above US$750 per tonne. The rules on the export taxes remain unchanged.

The details of the new regulation were different from those announced last week. Darmin Nasution, coordinating minister for economic affairs, earlier said the zero levy is implemented, when prices are below US$500 per tonne.

Asked on Wednesday about the difference in price thresholds, Nasution said it was due to the adoption of the trade ministry's reference price for the regulation.

The government will use the trade ministry's monthly reference price in deciding the levy, according to the regulation signed on Dec 4. The monthly reference price is set based on palm prices in Indonesia, Malaysia and Rotterdam.

Nasution said higher crude palm oil prices in Rotterdam means the government has to increase the floor price for exports to be imposed with levies.

The trade ministry's reference price for December stood at US$549.37 per tonne. In comparison, palm oil benchmark contracts in Kuala Lumpur were trading around 2,000 ringgit (US$481.23) per tonne on Wednesday.

Indonesia collects levies from palm exporters to help finance the development of its palm-based biodiesel programme and fund replanting.

Nasution said last week, a rapid drop in palm prices has made it "urgent" for the government to take action, especially to help palm farmers.

The palm benchmark in Malaysia hit its lowest since August 2015 last week, as stocks of the vegetable oil continue to remain elevated amid soft global demands.

"This is a good move (for Indonesia) but bad for Malaysia, as we need to compete with them," said David Ng, derivatives specialist at Phillip Futures in Kuala Lumpur.

"Indonesian crude palm oil is now priced more competitively," he said.

(US$1 = 4.1560 ringgit)