(Oct 13): Malaysia’s extension of tax-free exports of crude palm oil until the year-end is intended to support prices and curb the buildup of reserves, said Plantation Industries and Commodities Minister Douglas Uggah Embas.
“We hope this will continue to prevent any drastic fall in the price,” Uggah said in an interview after the government announced the decision for November and December in the budget on Oct. 10. “There is a need to give time for the exporters to organize the whole machinery including shipping and so on and so forth. Now we’re giving them an additional two months.”
Futures lost 18 percent this year amid a global glut in edible oil supplies, hurting producers’ profits in Malaysia and Indonesia, the two largest suppliers. The Malaysian government initially waived the export tax for September and October after prices dropped to a five-year low, and Indonesia’s tariff was also set to zero for this month, boosting competition. While some Malaysian growers including Sime Darby Bhd. welcomed the extension, the decision was criticized by a refiners’ group.
“It’s a good move because it will reduce the country’s stock,” said Franki Anthony Dass, executive vice president of the plantation division at Sime Darby, the biggest listed producer. “That will help buffer up the CPO price,” Dass said in a telephone interview from Papua New Guinea, using the initials for crude palm oil.
Sime Darby, which last week offered 1.07 billion pounds ($1.7 billion) to take over New Britain Palm Oil Ltd., refines locally as well as outside Malaysia, including in Europe and China, according to its website. The company can take palm oil out to the European market or so-called destination refineries, while also maintaining flows to Malaysian processing plants, according to Dass, who wants the exemption extended into 2015.
Futures on the Bursa Malaysia Derivatives, the global benchmark, fell 0.2 percent to 2,177 ringgit ($668) a metric ton at 10:53 a.m. in Kuala Lumpur. Prime Minister Najib Razak announced the additional two months for tax-free shipments in the budget address shortly before the end of trade in Kuala Lumpur on Oct. 10. Prices lost 0.4 percent that day.
“We want the government to stick to the CPO tax-duty structure as it is,” said Mohammad Jaaffar Ahmad, chief executive officer of the Palm Oil Refiners Association of Malaysia. “The export numbers will go up, but the composition is more CPO than processed palm oil. At the end of the day, we’ll end up being a CPO exporter rather than a processed palm oil exporter.”
Stockpiles in Malaysia climbed 1.8 percent to 2.09 million tons in September, the highest level since March 2013, according to data from the country’s palm board. Exports surged 13 percent to 1.63 million tons last month. The oil is used in foods, cosmetics and biofuels.
“It is a good, preemptive move by the government,” Lee Yeow Chor, chief executive officer of IOI Corp., said in a text message. “This exemption of CPO export duty can be used as a short-term measure to increase the total export volume of palm oil, but its effect on the export volume of refined palm oil will have to be closely monitored as there is now a negative margin in producing refined palm oil.”
Indonesia’s tax on crude palm exports may remain at zero as prices are still low, Bayu Krisnamurthi, deputy trade minister, told reporters in Jakarta on Oct. 10. The country sets the monthly tariff according to a formula based on average prices in Jakarta, Rotterdam and Kuala Lumpur. Crude shipments attract no tax if the average rate is $750 or less over a four-week period.
Palm slumped this year amid forecasts for a bumper global crop of soybeans, which can be crushed to yield an alternative oil. U.S. farmers will harvest a record 3.927 billion bushels this year, compared with 3.913 billion estimated in September and last year’s 3.358 billion, the U.S. Department of Agriculture said Oct. 10. Worldwide inventories before the start of the 2015 Northern Hemisphere harvests will rise to a record.
Soybeans in Chicago dropped 28 percent this year to $9.2875 a bushel, while soybean oil lost 16 percent to 32.74 cents a pound. Palm oil’s discount to soybean oil was at $51.56 a ton today compared with an average of about $244 a ton last year, according to data compiled by Bloomberg.