Palm oil

Palm oil: According to media reports, Indonesian President Joko Widodo has finally signed a regulation requiring exporters to pay a new export tax levy, to take effect by end May.

While the details remain unclear, the proposed levies are said to be US$50/t for CPO shipments and US$30/t for processed palm oil products.

The levy will only kick in when international CPO price falls below the threshold price of US$750/t, which attracts zero export tax and removed when the international price is above US$750/t.

The levy collected will be deposited into a fund which will be used to fund Indonesia’s revised biodiesel programme (B15) effective 1 Apr ’15.

Overall, Maybank-KE is of the view that this new export levy is short term negative for the purer upstream players with operations in Indonesia (like Bumitama Agri, London Sumatra, TSH Resources) as it will shave US$50/t from the planters’ top line for every ton of CPO they produce.

The house recent channel checks with industry players suggest that upstream planters have started to receive lower CPO proceeds from traders/downstream players since this export levy proposal were first mooted in early-Apr ‘15.

Meanwhile, integrated players (like Wilmar, First Resources, Golden Agri, Indofood Agri, and Salim Ivomas) will be less affected relative to the purer upstream players as the export tax levy differential will help boost downstream margins.

The house believes that the government’s ultimate aim is not to punish upstream planters but to boost Indonesia’s domestic biodiesel consumption to 4.8m MT over time (2014: 1.6m MT), to reduce stockpiles and ultimately boost CPO price.

The recent stock price correction in Indonesia may have largely priced in this new export levy. Over the medium term, Maybank-KE believe Indonesia’s ambitious B15 programme could be positive for CPO price if well implemented. But thus far, Indonesia’s execution track record has been poor. The house is maintaining its Neutral view on the sector.