CPO prices boosted by Indonesia export levies

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KUALA LUMPUR: Crude palm oil (CPO) prices rebounded yesterday reversing the downtrend since March on news that Indonesia President Joko Widodo has decided to slap an export levy of US$50 (RM178.50) per tonne on CPO and US$30 per tonne on processed palm oil products

The three-month July CPO futures contract traded higher at RM2,183 per tonne, a RM26 or 1.2% increase from the previous closing price of RM2,157 per tonne.

Prices of the benchmark contract have been trending downward since March 2 when the price was at RM2,360 per tonne, and they touched as low as RM2,082 per tonne at the end of last month.

The export levies were reportedly imposed to fund Indonesia’s recently announced biodiesel subsidies and it could help to underpin palm oil prices if biodiesel demand picks up.

In a statement yesterday, Minister of Plantation Industry and Commodities Datuk Amar Douglas Uggah Embas said the government is “closely” monitoring the situation and analysing any possible impact of Indonesia’s export levies on the Malaysian palm oil industry.

He said a task force was formed to discuss and recommend policy options to the government.

CIMB Research’s analyst Ivy Ng Lee Fang told The Edge Financial Daily that the research house was not surprised by the news as the market had been anticipating the implementation of the levies since early April.

“Details on the new regulations like whether all or selected processed palm oil products will be taxed remain unclear,” she said.

Ng pointed that the export levies will not go down well with Indonesian plantation owners because the tax will result in refiners squeezing the planters for lower prices.

“However, this could be offset by medium-term gains from higher CPO prices if the move boosts biodiesel usage significantly,” she said.

An analyst explained that the impact on companies like Sime Darby (fundamental: 1.0; valuation: 1.1) and KLK (fundamental: 1.0; valuation: 0.5) would not be significant as both have exposure of merely 30% to 40%.

Kenanga Research analyst Voon Yee Ping said the new policy would reduce export volume from Indonesia, thus benefiting Malaysian palm oil producers.

“There will be restricted supply in the market in the short to medium term,” she said.

A public-listed CPO player’s executive said his management team understood that the new policy was necessary to be implemented.

“It is short-term pain for long-term gain, as it will ultimately promote biodiesel demand and drive up CPO prices,” he said.


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This article first appeared in The Edge Financial Daily, on May 7, 2015.