No big shift seen from CPO export tax cut plan

It is still attractive to ship out refined products

“Refined palm oil products are still more competitive for local players to export because of the zero export duty.”

Ivy Ng

KUALA LUMPUR: The government’s proposal to cut the crude palm oil (CPO) export tax by as much as half starting next month could affect palm oil refiners significantly while the upstream planters will get to enjoy the benefits to a certain extent, say industry experts.

On Tuesday, Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin disclosed that her ministry has proposed to cut the export tax on CPO to 4% to 6% from the current 8%, citing it as “a temporary measure”.

The decision could be made as early as next month, she said.

When contacted by Starbiz, industry experts believed that the proposal may not have a significant impact on the local palm oil industry as “it is still attractive to export refined palm oil products, which currently have zero percent export duty”.

CGS-CIMB Research regional head of plantations Ivy Ng pointed out that the majority of palm oil exports from Malaysia is processed palm oil products, saying that there may not be a “significant shift” among the plantation companies that are eyeing to export more CPO.

Based on the latest Malaysian Palm Oil Board data, she cited that about 78% of the country’s exports was processed palm oil in the first four months of this year, while only 22% accounted for CPO exports.

Similarly, last year, only 29% of exports accounted for CPO, while the remainder of exports was processed palm oil products.

“Refined palm oil products are still more competitive for local players to export because of the zero export duty, so I don’t see the significant shift in everyone wanting to export CPO despite the intention to cut its export tax.

“The impact is not significant at this juncture simply because the equation hasn’t changed as companies would still prefer not to pay any taxes,” said Ng.

However, she noted that it will be “slightly positive” for the upstream players as this would make Malaysia’s CPO more competitive in the short run, as there is a possibility of more CPO to be exported to major importing countries such as India and China.

She added that Malaysia’s competitiveness on exports of CPO is already high because of Indonesia’s ban on its CPO exports.

Ng noted that the policy would be “negative” for refiners as it would put pressure on the refining companies’ margins with lesser CPO in the market, which is a key raw material for refiners to produce processed palm oil products.

That said, a refiner based in Johor said the policy proposed would affect its performance as there will be a shortage of CPO that is used to process palm oil products and this would, in turn, affect the exports of its refined palm oil products.

“If the CPO tax is reduced, more local CPO would be exported from the country and there will be shortage of CPO in the market, which would reduce our exports of refined palm oil and put pressure on our margins,” added the refiner.

Meanwhile, a plantation analyst opined that the government should put more focus on speeding up the process for planters to recruit foreign workers, as the country is facing an acute labour shortage at oil palm estates nationwide.

“Getting workers for planters to harvest the fresh fruit bunches would help increase planters’ production and that should be the key focus right now.

“This would also allow planters to cash in on the rising palm oil prices,” added the analyst.