CPO export tax move good for firms with upstream ops

CIMB says tax suspension to benefit planters like FGV and Ta Ann

PETALING JAYA: The move to suspend crude palm oil (CPO) export taxes for three months is positive for Malaysian planters as it will help boost exports of the commodity.

CIMB Equities Research said that it expected Malaysian plantation companies such as Felda Global Ventures Holdings Bhd (FGV) Hap Seng Plantations Holdings Bhd, Genting Plantations Bhd, Ta Ann Holdings Bhd and Jaya Tiasa Holdings Bhd to benefit from the suspension of export taxes on CPO for a three-month period from Jan 8 to April 7.

In a report yesterday, the research firm said these were plantations with significant upstream operations which will benefit from this measure in the near term.

However, planters with integrated palm oil operations in Malaysia (such as IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Wilmar International Ltd) will see minimal earnings impact.

“Maintain ‘neutral’ on the plantation sector and our average CPO price assumption of RM2,700 per tonne for 2018,” it said.

Last Friday, the government announced it has suspended export taxes on CPO for three months to boost palm oil prices and reduce high stockpiles.

But, the export tax suspension will be lifted before the three-month period if CPO stocks fall to 1.6 million tonnes, according to Minister of Plantation Industries and Commodities Datuk Seri Mah Siew Keong.

The government had earlier set the CPO export tax at 5.5% for January 2018.

Mah added that palm oil prices have plummeted since October 2017 and this was one of the short term pre-emptive measures by the government to manage the fall in crude palm oil prices so that smallholders’ incomes were not impacted and the country’s oil palm industry remained competitive.

The scheme is open to all companies with CPO export licences.

The last time Malaysia suspended CPO export taxes was in September to October 2014.

Under the new structure, the export duty for CPO ranges from 4.5% to 8.5%, when the CPO price is above RM2,250 per tonne.

The rate of the export taxes is set monthly, based on average CPO prices on the 10th of the previous month and the 9th of the current month.

“This is a surprise to us and will be positive for Malaysian planters in the near term. This is because the move to cut export tax in January 2018 to zero will allow CPO exporters in Malaysia to save RM144 per tonne (5.5% (export tax) x RM2,623 per tonne (reference price for CPO).

“This will help boost CPO exports from Malaysia as it will be more competitive against Indonesian CPO exports, which are subject to a CPO levy of US$50 per tonne.

“This is negative for Malaysian refiners as they will be less competitive against the Indonesian refiners.

“Following the suspension, the export tax differential between processed palm oil (refined products) and CPO will be zero in Malaysia compared to the US$20-30 per tonne export levy differential for Indonesian refiners,” CIMB Research said.

This measure will help encourage CPO exports from Malaysia, which have been weak following India’s move to raise import duties for palm oil in November.

However, this move may not be able to significantly lift CPO prices due to the stronger ringgit and our projection that Malaysian palm oil stocks may have risen by 6% monthon-month to 2.7 million tonnes in December 2017, CIMB Research said.