JAKARTA (Oct 14): Indonesia is expected to keep its export tax on crude palm oil at zero for a second month in November, industry sources said on Tuesday, as the top producer strives to remain competitive with rival grower Malaysia, which has also removed the tax.
Benchmark crude palm oil (CPO) prices have dropped almost 20 percent this year and hit a 5-1/2-year low of 1,914 Malaysian ringgit($586) a tonne last month in an oversupplied market.
In an attempt to give the market a boost, the world's No.2 palm oil producer, Malaysia, exempted the commodity from export taxes from September until the end of December.
Indonesia followed by slashing its monthly CPO export tax to zero for October from 9 percent in September and this is now likely to be extended into November, said Steaven Halim, an official at the Indonesian Palm Oil Association.
If international CPO prices drop below $750 a tonne, the Indonesian export tax is automatically cut to zero, and Halim said he was confident the price would not be higher than that.
Industry analysts agreed. "Malaysia has extended it to December," said Ong Chee Ting, an analyst at Maybank Investment Bank. "The expectation is that there will be at least one (more) month of zero tax rate for Indonesia."
Indonesia's government looks at average international and domestic CPO prices before announcing its monthly CPO export tax rates. The decision on November is due in the final week of October.
Southeast Asia's biggest economy, which is expected to produce 30 million tonnes of palm oil this year and export around 20 million, introduced an export tax in 1998 to ensure domestic demand was met and to boost downstream industries, which generate more cash.
Major firms operating in the world's top palm producer include Golden Agri-Resources, Wilmar International and Sime Darby Bhd. Top overseas buyers are India, China and Europe.
Benchmark palm prices have been weighed down by high inventories as anticipated demand from biodiesel consumption lagged below target and the crop-damaging El Nino weather pattern did not materialise this year.
(1 US dollar = 3.2650 Malaysian ringgit)