October CPO export tax increased to 6.5%
> Increase expected to hit demand but lower output could support prices
KUALA LUMPUR: An increase in Malaysia’s crude palm oil export tax for October is expected to dampen already weakening demand for the tropical oil, but likely below-average production in coming months could support prices.
Crude palm oil (CPO) prices have risen about 9% since July due to tight supplies following last year’s El Nino dry weather pattern, which damages crops across Southeast Asia and lowers palm yields.
The price increase led the world’s No. 2 producer after Indonesia to increase its October CPO export tax to 6.5% from 5% in September. The tax kicks in at 4.5% when a calculated palm oil reference price tops RM2,250 a tonne and stops at 8.5%.
“The main question now is are we able to export? Exports have already been dropping and consumers are not buying at these high levels,” said a trader from Kuala Lumpur, adding that the higher tax will further dampen demand.
“Furthermore soy is showing signs of weakness. When you have competing oils coming down, consumers have avenues to look for alternatives,” he added.
A narrowing spread between palm and its rival oilseed soy, which could narrow further on growing soybean supplies, makes soyoil a more attractive choice for buyers.
Palm oil shipments for the first half of September fell 8.7% on slowing demand from India, the largest buyer of Malaysian palm oil, according to cargo surveyor Intertek Testing Services.
Traders said demand was expected to slow in the next two months even without the export tax hike. – Reuters