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