Indonesia will impose a levy of USD50.0 a tonne on  exports of crude palm oil when prices fall below a threshold triggering a monthly tax on shipments overseas, the chief economics minister said. When prices of crude  palm  oil  fall  below  the  threshold  of  USD750.0 a  tonne  on average,  the  world’s  top producer  of  the  tropical oil cuts  the monthly tax on its CPO exports to zero. Indonesian officials are preparing new rules  for  a  charge  of  USD50  on  every  tonne  of  CPO  shipped  at  the zero export tax rate, the minister said, with the funds going to help pay for biodiesel subsidies announced in recent weeks.  He said that when the CPO export tax kicked in, the government would  allocate USD50.0 a tonne to its biodiesel fund from the revenue earned. The measure will go to Indonesian President for approval on his March 30 return from overseas trips. To secure processing supplies, he said the government may also require CPO producers to allocate 15.0% oftotal output for domestic use, but gave no further details. (Jakarta Globe)

Comments: We  think  the  news  of  a  flat  CPO  export  levy  will  be positive  to  Indonesian  downstream  players  as  we  estimate  the USD50.0 levy to translate to 8.0% export duty, assuming CPO price of RM2200.0/MT (or USD623.0 at USDMYR3.53). We also note that the effective export duty would be higher as CPO pricesdecline (see table below), giving increasing benefit to downstream players. Recall in our previous  comment  on  19-Mar-15  that  we  think PPB  (MP;  TP: RM15.42) will  benefit  due  to  its  18.0%  exposure  to  Wilmar  which operates  about  25  refineries  in  Indonesia.  Other  planters  under  our coverage  do  not  have  significant  exposure  to  the  Indonesian downstream  industry.  However,  we  think  the  impact  to  biodiesel production will be limited as we gather that the USD50.0 levy collected will be used to fund the existing biodiesel subsidies.

Meanwhile,  we  are  only  slightly  positive  on  the  potential  impact  of 15.0% of total CPO output reserved for domestic usein Indonesia. This translates to about 5.0m MT (8.0% of global CPO production in 2014). We think the reduced supply from Indonesia should be supportive to CPO  prices  and  Malaysian  CPO  exports.  However  we remain NEUTRAL on  plantations  as  we  believe  CPO  price  near-term upside potential is capped by declining soybean oilprices.

Source: Kenanga Research - 23 Mar 2015