Malaysian CPO demand seen rising ahead of tax resumption

KUALA LUMPUR: Malaysian crude palm oil (CPO) demand is expected to pick up ahead of the export tax resumption as overseas buyers stock up before the zero-duty period ends in early April.

The world’s second-largest palm oil producer set its April CPO export tax at 5%, after a three-month duty suspension implemented at the start of the year, a government circular showed.

Although demand is likely to ease when the tax kicks in, Malaysian palm oil benchmark prices are expected to see some support in the short term. The contract rose to a two-week top in early trade yesterday and was last up 0.2% at RM2,452.

“In the short term, this could prompt buyers to buy more ahead of the tax resumption,” said David Ng, a derivatives specialist at Phillip Futures.

“However, in the medium term, we could see slower demand as buyers shift to Indonesia.”

Key buyers such as India and China are price sensitive markets and tend to favour Indonesian palm oil as its prices are typically lower after factoring in Malaysia’s export tax.

Malaysia calculated a palm oil reference price of RM2,474.63 per tonne for April. A price above RM2,250 incurs a tax.

The country in early January had suspended its export tax on CPO for three months to increase demand and boost prices, as it expected stockpiles to grow in 2018.