13 February 2020 (closed)
USD/IDR (13,707) +28.00 +0.20%
EUR/IDR (14,853) -19.58 -0.13%
Jakarta Composite Index (5,871.95) -41.13 -0.70%
Crude palm oil (CPO) shipments from Malaysia climbed 18 percent month-to-month (m/m) in March as firms rushed to export CPO ahead of the (re)introduction of a 4.5 percent CPO export tax in April. This export tax had been scrapped since September 2014 in an effort to boost global CPO demand and prices. A median suggests that CPO production in Malaysia rose 18 percent (m/m) to 1.32 million tons in March, which would mean that palm oil production in Malaysia rose for the first time in seven months.
Meanwhile, CPO inventories in Malaysia, the world’s second-largest palm oil grower (after Indonesia), touched the lowest level since July 2014. The median, which involves estimates of seven palm oil planters, analysts and traders, suggests that stockpiles fell from 1.74 million tons to 1.73 million tons in March. Malaysia’s official CPO statistics will be released by the Malaysian Palm Oil Board on 10 April.
Dorab Mistry, director at Godrej International, said that “[palm oil] output [in Malaysia] will trail levels in 2014 through June as a biological low cycle coincides with a seasonal drop.” In peninsular Malaysia, oil palm estates are still recovering from floods that damaged these estates in December 2014. As such, Malaysian CPO production will slowly recover towards mid-2015. As a positive side effect, slightly lower inventories will support global palm oil prices. Palm oil futures in Kuala Lumpur have declined 18 percent over the past year.
Amid the sluggish world economy, demand for palm oil declined drastically in recent years (particularly due to falling demand from China, the world’s largest buyer of CPO after India). Moreover, palm oil lost its appeal due to dramatically falling crude oil prices (diminishing demand for palm oil-based biofuels) as well as the record soybean harvest. However, CPO shipments to China surged 221 percent in March, presumably because the country is restocking after February’s Lunar New Year celebrations.
Indonesian Palm Oil Industry Update
Meanwhile, in Indonesia (the world’s largest palm oil grower), it was decided two weeks ago that a USD $50 export levy (per metric ton) is to be imposed on CPO shipments, and a USD $30 (per metric ton) export levy on processed palm oil products starting from April 2015. These levies will be used to fund biodiesel subsidies (compensating price differences between regular diesel and biodiesel), replanting, as well as research and human resources development in the palm oil industry.
This new policy is in addition to the existing rule which stipulates that CPO export tax is reduced to 0 percent when the government’s reference CPO price falls below the USD $750 per ton threshold (during a four-week period). This reference price is set monthly and is based on the average of CPO prices in Jakarta, Rotterdam and Kuala Lumpur. Starting from October 2014 Indonesian authorities have scrapped the CPO export tax because its reference price has been below the USD $750 per ton threshold, meaning that the government is missing out on revenues from the palm oil sector.
However, when the reference CPO price surpasses the threshold - implying that the CPO export tax tariff rises from zero percent - then the new levy will be taken from the export tax that is paid by palm oil exporters. As such, exporters will not face additional costs when the export tax comes back to life. When the reference price is above the USD $750 per ton threshold, the CPO tax rises to between 7.5 and 22.5 percent depending on the CPO price.
Palm oil futures in Kuala Lumpur climbed 0.9 percent to 2,211 ringgit (USD $610) per ton, the highest level since 20 March, on Monday morning (06/04).
Indonesian Palm Oil Production and Export:
(million metric tons)
(million metric tons)
(in USD billion)
¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture