KUALA LUMPUR: Malaysia, the world’s second-largest palm oil producer, has decided to exempt crude palm oil (CPO) from export taxes for September and October to help cope with rising inventory and falling prices.
The withdrawal of the export tax will help give some breathing space to local upstream producers such as plantation companies which produce and market CPO.
The tax rate has been lowered to 4.5% since June this year in tandem with the decline in CPO prices. The rates are reviewed and changed every month.
“However, as the price is [now] below our threshold of RM2,250 per tonne, we have to take action to stop it from declining further. [Because] if there is no action to address this trend, we are expecting the price to decline further until the end of the year, with the average price at between RM2,200 and RM2,280 per tonne and CPO stock levels to reach up to between two million tonnes and 2.2 million tonnes,” Plantation Industries and Commodities Minister Datuk Seri Douglas Uggah Embas told a press conference on the sidelines of the Malaysian Palm Oil Council’s (MPOC) Industry Leadership Forum here yesterday.
“[With the exemption], we hope the price will respond accordingly,” he said.
The exemption from duties is expected to increase palm oil exports by 600,000 tonnes over the two months (September and October) and reduce stock levels to 1.6 million tonnes by the end of the year, Uggah said in a statement. Stockpiles stood at 1.68 million tonnes as at the end of July.
Uggah said upon studying the effects of the exemption for the two months, the government will consider extending it until the end of the year, if necessary.
MPOC chairman Datuk Lee Yeow Chor said the exemption from duties will create a level playing field between Malaysia and Indonesia, thus promoting competition.
He believes that a lower CPO price will stimulate demand for biofuel, which will in turn help to increase palm oil prices.
“The energy sector is a huge sector. Even a small percentage of it will make a difference,” he told The Edge Financial Daily yesterday.
Despite the anticipated downward trend, Lee is optimistic that CPO price will not slump to below production costs.
Uggah said the government is also expected to make a decision this month on implementing the B7-biodiesel mandate,
which will see a higher portion of palm oil being supplied for the production of biodiesel throughout the country.
He said Peninsular Malaysia has already met the B5-biodiesel mandate, with Sabah and Sarawak slated to meet the mandate at the end of this year.
“If the Cabinet approves our proposal, the B7-biodiesel mandate will be implemented for the whole nation effective Dec 1,” the minister said.
“It is not difficult to move from B5 to B7 because our blending systems are sophisticated. We have also discussed moving beyond B7 to B10.”
Under the B5 programme, 5% of the biodiesel blend will be made up of palm oil methyl ester. With the implementation of the B7 programme, the biodiesel will have 7% palm oil methyl ester added to diesel.
Palm oil prices have been on a downward trend over the past few months. It was reported last Friday that the third-month benchmark for CPO futures was traded at RM1,930 a tonne, below the usual average of RM2,000.
Forecasts of higher-than-expected soybean harvests, coupled with a failure by both Indonesia and Malaysia to increase biodiesel use, have contributed to the slump in CPO prices.
Bloomberg reported early last month that the Malaysian government had delayed the nationwide implementation of its biodiesel mandate to the end of this year, from the original July target.
According to the report, the delay was brought about by the 15 blending facilities in Sabah, Sarawak and Labuan which are still under construction.
MPOC is mandated to produce between 500,000 tonnes and 700,000 tonnes of biodiesel a year while Indonesia is required to produce three million tonnes of biodiesel a year.
Indonesia and Malaysia produce 86% of the total global palm oil stocks.
This article first appeared in The Edge Financial Daily, on September 5, 2014.