An official at Indonesia's Trade Ministry said Southeast Asia's largest economy is to scrap the export tax on crude palm oil (CPO) again. In July 2016 the export tax will be lowered to zero, from USD $3 per ton in the preceding month, due to sliding palm oil prices. The Indonesian government expects palm oil prices to fall in July because after the Ramadan month and subsequent Idul Fitri celebrations are finished demand for the edible is set to decline.
Between October 2014 and April 2016 Indonesia's export tax for palm oil shipments was set at zero as the government's benchmark palm oil price remained below the USD $750 per ton threshold. Instead, in a bid to collect revenue from the palm oil sector (the key foreign exchange earner for Indonesia in terms of non-mining export products), the government introduced a USD $50 per ton export levy on CPO and a USD $30 per ton export levy on processed palm oil products. Part of these funds are used to finance Indonesia's biodiesel program as well as palm oil rejuvenation programs.
In Malaysia, after Indonesia the second-largest global force regarding palm oil production and export, palm oil futures dipped after the "Brexit" as Malaysia's ringgit weakened sharply. Although a weaker ringgit actually makes palm oil shipments more attractive for foreign importers, recent heavy ringgit volatility makes the currency unstable and therefore buyers tend to wait and see. Kuala Lumpur's benchmark palm oil futures (September delivery) declined over 9 percent to 2,378 ringgit (USD $580) per ton so far this month (the sharpest monthly fall since August 2014).
Palm oil prices will have difficulty to rise in the coming months as demand is expected to ease after the Ramadan and Idul Fitri celebrations, while CPO production is expected to remain solid. Earlier, El Nino-inflicted dry weather in Southeast Asia in 2015 and the start of 2016 curtailed CPO output in Indonesia and Malaysia hence pushing palm oil prices higher in the first quarter of 2016.
Meanwhile, it was reported in Indonesian media that some 2,326 palm oil plantation workers have stopped working due to the weak conditions in Indonesia's palm oil sector. These workers were all employed by the Makin Group (consisting of palm oil plantation firms Mukti Sawit Kahuripan, Surya Inti Sawit Kahuripan, Wanayasa Kahuripan Indonesia, Katingan Indah Utama, and Intiga Prabhara Kahuripan). It was reported that the 2,326 workers were not fired but decided to step down from their positions (most likely after reaching an agreement with the companies' managements).
Due to the low palm oil prices, plantation firms in Indonesia have become plagued by financial turmoil. From USD $1,275 per ton in 2011 palm oil prices fell approximately 55 percent to USD $580 per ton currently. Moreover, production costs have risen for the companies over this period because minimum wages in Indonesia as well as prices of fertilizers have been growing.
Indonesian Palm Oil Production and Export Statistics:
(in USD billion)
¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture