Malaysia, the world’s largest palm oil producer after Indonesia, scrapped an export tax on the crude variety for two months to boost shipments and reverse a decline in prices to a five-year low.
Shipments of crude palm oil in September and October will not attract a levy, the Ministry of Plantation Industries and Commodities said in a statement yesterday. The government earlier set the tax at 4.5 percent for September. The tariff exemption will increase exports by 600,000 metric tons and help contain stockpiles at 1.6 million tons by year-end, it said.
Palm, used in food, detergents and biofuels, tumbled into a bear market in July on swelling global supplies of edible oils, including a record soybean harvest in the U.S. Prices risk tumbling further to approach the cost of production, according to Dorab Mistry, director at Godrej International Ltd.
Futures on the Bursa Malaysia Derivatives in Kuala Lumpur plunged to 1,914 ringgit on Sept. 2, the lowest level since March 2009, and closed at 2,030 ringgit yesterday. In the absence of measures to arrest the slide, prices would have further declined until the end of the year, the ministry said.
“The tax incentive is the best instrument to promote the export of CPO and reduce CPO stocks in the country,” the ministry said referring to crude palm oil by its initials. Without the tax exemption stockpiles would have jumped to as high as 2.2 million tons by the year end, it said.
Reserves advanced 1.5 percent to 1.68 million tons in July from a month earlier, Malaysian Palm Oil Board data show. Output rose 6.1 percent to 1.67 million tons and exports fell 2.3 percent to 1.45 million tons, board data showed.
Malaysia cut taxes on exports in January 2013 to trim record stockpiles, replacing a tariff of about 23 percent with a sliding scale from 4.5 percent to 8.5 percent. The tax rates rose as prices climbed from the 2,250 ringgit a ton base price. Indonesia reduced its export tax to 9 percent for September, the lowest since November.
Production in Malaysia may reach a record 19.7 million tons to 19.9 million tons this year, while Indonesia’s output may total an all-time high of 30.5 million tons or more this year, according to Godrej’s Mistry. The two Southeast Asian producers together account for 86 percent of world supplies.
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Source : Bloomberg