Indonesia, the world’s largest palm oil producer has cut its export levy on palm oil to boost shipments. This comes against the backdrop of a steep increase of import taxes on various edible oils in India. We estimate that the new levy rates will reduce the CPO price gap between Malaysia and Indonesia from RM290/mt to RM181/mt. The struggling downstream players in Malaysia could face a bigger hit given the growing competition. At the point of writing, CPO futures closed at RM3,879/mt. Maintain Neutral on the sector outlook with a full-year CPO forecast of RM3,800/mt.

• Palm oil levy cut from Indonesia. According to Indonesia’s Finance Ministry, the country is cutting its export levy on palm oil in a bid to boost local shipments ahead of the peak production season. The world’s biggest palm oil producer set the CPO levy at 7.5% of the reference price, which will see the duty cut from USD90 to USD63 for Sept. Meanwhile, the levy for processed palm products will be between 3% and 6%. Indonesia collects an export tax and an additional levy on palm products.

• Another bad news from India. Last week, India, the world’s top importer and second largest consumer of edible oils, imposed a 20% basic custom duty on crude palm oil, crude soyoil and crude sunflower oil from 14th Sept in a move to support “remunerative prices” for local oil oilseed farmers ahead of the regional elections due in Maharashtra later this year. It will effectively raise the total import duty on the three major oils to 27.5% from 5.5% as they are also subject to India’s Agriculture Infrastructure and Development Cess and Social Welfare Surcharge. Meanwhile, imports of refined palm oil, refined soyoil and refined sunflower oil will attract 35.75% import duty against the earlier duty of 13.75%. Note that palm oil accounts for more than 50% of India’s edible oil imports.

• Negative impact for Malaysia’s palm oil exports. The new Indonesia’s levy coupled with the hike in India’s import taxes on edible oils could negatively affect Malaysia’s palm oil exports in the coming months as they could potentially lose some market share to their Indonesian counterparts while demand for palm oil products from India could be softer as we believe they would have stocked up ahead of the announcement. It will be more challenging for the local refiners, who have been struggling in the past. India is Malaysia’s second largest palm oil importer, accounting for 22% of total imports this year. IOI Corp, KLK and SD Guthrie are the notable Malaysian players that have exposure to the downstream business. On the positive note, we may see improved CPO prices from their Indonesian upstream business.

Source: PublicInvest Research - 20 Sept 2024