Plantations sector
Maintain neutral: According to a Reuters report, Indonesian officials are preparing new rules for a charge of US$50 (RM184.35) on every tonne of crude palm oil (CPO) shipped at the zero export tax rate, with the funds going to help pay for biodiesel subsidies announced in recent weeks. 

“At any CPO price, we will take US$50 per tonne,” said Indonesia’s Chief Economic Minister Sofyan Djalil, making clear that when the CPO export tax kicks in, the government would still allocate US$50 a tonne to its biodiesel fund from the revenue it earns.

The measure will go to Indonesian President Joko Widodo for approval after March 30. To secure processing supplies, Sofyan said the government may also require CPO producers to allocate 15% of total output for domestic use but gave no further details. 

Last week, the media reported that the Indonesian government was looking to lower the threshold CPO price for the monthly export tax to US$500 to US$600 per tonne.

We expect the levy of US$50 per tonne to provide the Indonesian government with more stable revenues when the export tax on CPO is zero compared with the previous plan of lowering the CPO price threshold for the CPO export tax. Our rough calculations suggest the Indonesian government could potentially collect a revenue of US$500 million from the CPO tax levy alone. It is unclear at this juncture if exports of refined palm products will attract a levy. According to Indonesian economy and finance portal detikFinance, exporters of refined palm products may have to pay a levy of US$30 per tonne. If this is implemented, it is likely to be negative for the pure upstream palm oil players (CPO price in Indonesia could trade at as much as US$50 per tonne below the international CPO price), positive for downstream players (enjoy a wider processing margin: the tax levy differential between processed palm products and CPO) and neutral to slight negative for the integrated palm oil players in Indonesia. However, this levy could be a medium-term positive for CPO players, if it is successful in boosting biodiesel demand, resulting in stronger CPO prices.

It is too early to assess the earnings impact on the players until the full tax levy on all palm products and utilisation plans of the funds are revealed. Our current CPO price assumptions for Indonesian planters, which already include relevant export tax rates for Indonesia, are unlikely to be affected by this move. 

However, the potential tax levy may impact CPO prices in Indonesia, which is currently at zero export tax, in the coming months. We will review our CPO price assumptions and latest developments in the sector soon. — CIMB Research, March 22

This article first appeared in The Edge Financial Daily, on March 24, 2015.