According  to  the  Indonesian  Coordinating  Minister  for  Economic  Affairs, Indonesia  plans  to  impose  an  export  levy  of  US$50/MT  on  palm  oil  and US$30/MT  on  olein  to  fund  biodiesel  subsidies,  replanting  as  well  as research and development. The threshold for the application of export tax is currently at US$750/MT but the minister said also that Indonesia plans to amend the export tax structure.

The Indonesian government announced in February that biofuel subsidies will be increased from IDR1,500 per liter to IDR4,000 per liter to support the domestic  biodiesel  industry.  The  government  will  also  raise  the  biodiesel blending rate from 10% in April to 15%. (Source: Bloomberg)

Comments:  As the intention is to raise revenue to fund biodiesel subsidies, which will  help  to  increase palm  oil  usage  and reduce inventory,  plans to impose  the  export  levy  is  expected  to  be  positive  for  Indonesian  planters over time. Higher usage and lower inventory will help to boost CPO prices. But in the short term, weak demand may limit the ability of planters to pass on the export levy to buyers. Buyers may also switch to Malaysian palm oil unless a similar export levy is imposed by the Malaysian government. We remain NEUTRAL on the sector. Mid-cap IJM Plant (RM3.37, BUY TP RM3.88) offers superior FFB production growth and 17% upside at current price.

Source: Affin Hwang Capital Research - 24 Mar 2015