KUALA LUMPUR – Malaysia’s move to scrap its crude palm oil export tax in May will likely prompt India and China, the biggest buyers of the edible oil, to delay purchases to next month to get cheaper cargoes, industry sources said.
Malaysia’s reduction of the export tax back to zero comes just as its biggest rival Indonesia, the top producer of the tropical oil, moves closer to laying on additional levies to its own palm exports to fund biodiesel subsidies and ambitious mandates rolled out earlier this year.
“Given that Indonesia is going to impose the levy on its oil, it’s likely Malaysia will benefit from this move because it is offering duty-free exports,” said Michael Greenall, managing director at BNP Paribas Capital in Malaysia.
Malaysia, world No 2 palm grower after Indonesia, will remove its tax on exports of the crude grade for May, a government order showed.
Previously, the export tax had also been set at 0% from September to March before being hiked to 4.5% for the month of April.
An Indonesian levy of US$50 a tonne on any crude palm exports shipped at a zero export tax rate will come into effect once signed by President Joko Widodo.
“Buying may pick up from both India and China. China’s domestic inventories for palm is quite low, under 500,000 tonnes.
“They need to replenish – this may be an opportunity for them to take advantage of the duty-free period in Malaysia,” said Greenall.
Sellers may also want to wait for the no-tax period in May before exporting, and that along with buyers waiting, could push up Malaysian inventories, traders said.
“If I’m a CPO seller, I will wait until May, then only sell.
Otherwise, I will be paying taxes for no reason,” said one trader with a foreign commodities brokerage in Kuala Lumpur who declined to be named.
Palm oil stocks rose to 1.87 million tonnes in March, the first increase in four months.
Palm oil prices on the benchmark Bursa Malaysia Derivatives Exchange was trading at just over RM2,150 (US$590) a tonne yesterday, after dropping over 6% in March – its worst monthly showing in seven months.
Exports of Malaysian palm oil shipments fell 3% in the first half of April to between 470,058-477,295 tonnes compared with the same period in March, cargo surveyors said. — Reuters