Duty on CPO exports to resume in March

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KUALA LUMPUR: Malaysia will resume its export duty regime for crude palm oil (CPO) next month, said Plantation Industries and Commodities Minister Datuk Seri Amar Douglas Uggah Embas.

He said the export duty rate will be determined on Feb 16.

“We had suspended it [export duty regime] until end-February 2015 and after studying the current scenario, looking at its impact and prices [of CPO], the government has decided that the export duty regime will resume in March,” he told reporters after chairing a dialogue session with palm oil industry stakeholders at the Reach and Remind Friends of the Industry Seminar 2015 here yesterday.

Malaysia had imposed a zero export duty on CPO from Sept 14, 2014 to end-February this year to boost CPO exports and reduce inventories, which would in turn positively impact local CPO prices.

The suspension of export duties, coupled with the forecast of seasonally lower output at end-2014, had brought relief to the industry which was bogged down with low CPO prices since mid-last year, with the price hitting a five-year low of RM1,914 per tonne on Sept 2, 2014.

CPO is currently trading at RM2,280 per tonne on the back of low stocks and production.

Earlier in his speech at the event, Uggah said CPO production by both Malaysia and Indonesia is expected to increase to 51.1 million tonnes this year, compared with 49.2 million tonnes in 2014.

Uggah said the softening of CPO prices is indicative of slower global economic growth, notably in China, which dampens demand, as well as stiffer competition posed by an increase of production in vegetable oils, especially soyoil.

“China recorded a lower economic growth of 7.5% and this has repercussions for Asian countries, including Malaysia. China accounts for close to 20% of Malaysia’s global exports of palm oil and palm oil products,” he added.

He also said global soyoil production in 2014, especially in the third quarter of 2014, increased by 16.6%, compared with the corresponding period in 2013.

“This indirectly places pressure on CPO prices, with the margin between soybean oil and CPO reduced to about US$88 (RM318.56) per tonne, compared with an average of US$200 per tonne in 2014,” he added.

Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron said the agency has projected CPO prices to reach a high of RM2,700 per tonne, an average of RM2,500 per tonne and a low of RM2,200 per tonne this year.

He also said Malaysia expects to increase its total annual production of CPO to more than 20 million tonnes this year, from 19.6 million tonnes in 2014.

Although declining stocks and production is expected due to seasonally low output and rainy weather in Sabah and Sarawak, MPOC chairman Datuk Lee Yeow Chor noted that the sharp fall of 22.07% to 1.18 million tonnes in CPO exports in January 2015 compared with 1.52 million tonnes in December 2014 is “worrying”.

During the dialogue session, Uggah conceded that Malaysia needs to ramp up efforts to win back its declining market share in Bangladesh, Pakistan, India and the United States.

He also said the government is still engaging with various stakeholders on the proposed implementation of the B10 biodiesel mandate this year, acknowledging there are challenges and “teething problems” to overcome.

“I’m very frustrated. I should be announcing the implementation of B10, but this is Malaysia and we have to engage with various stakeholders. If not, there will be repercussions,” he added. The government’s biodiesel mandate currently involves the B5 and B7 programmes.

The B10 biodiesel mandate will have 10% of palm oil methyl ester added to diesel, and if implemented, could carve out one million tonnes of CPO from inventories.

 

This article first appeared in The Edge Financial Daily, on February 13, 2015.