PETALING JAYA: Malaysia’s palm oil may be losing price competitiveness as stockpile data reveals creeping imports and declining exports.
Amidst Indonesia’s revamped progressive tax rate, which came into effect last December, Malaysia saw the import of palm oil rising 74% year-on-year (y-o-y), while exports declined 7% y-o-y for the January-April 2021 period.
If Malaysia’s rising stockpile – which is often viewed as a proxy to the region’s stockpile – is left unchecked, Maybank Kim Eng thinks that the sector could run the risk of ending the crude palm oil (CPO) price rally prematurely.
The research firm urged an immediate stopgap measure such as to exempt duties on Malaysian CPO exports to ease the problem.
“The January-April 2021 Malaysian Palm Oil Board (MPOB) statistics have given a glimpse of a structural problem faced by the industry, although largely ignored due to the high palm oil prices, ” it said in a report.
Maybank noted that the current scenario closely mirrored that of the 2011-2012 period where Indonesia had, in October 2011, changed its export tax structures to lure investments into downstream facilities via differential taxes which favoured downstream products. Taxes on the export of processed palm oil (PPO) were lower than CPO.
Back then, Malaysia had punitive CPO export taxes of up to 30%, which meant that exporting CPO was not a feasible option. The government finally revamped its tax structure in December 2012 to broadly match Indonesia’s tax differentials.
Indonesia’s recent tax revamp, similarly, gives its refiners unfair raw material cost advantage and the widened tax differentials raised Indonesia’s theoretical refining margins further.
“The government and industry should act fast to avert a repeat of 2012. After all, the refiners are an integral part of the ecosystem as 77% of all Malaysian exports between 2011 and 2020 were in the form of PPO.
“In 2012, the refiners’ inability to operate profitably resulted in low utilisation rates and CPO inventory was rising quickly in the second half of 2012 during the seasonal peak production months. Eventually, it sent wrong signals to the market that led to a CPO price selldown. That year, the CPO spot price was down 29% y-o-y by end-2012 to RM2,231 per tonne, ” Maybank said.
Nonetheless, as the CPO price has averaged RM4,061 per tonne year-to-date, the research house has revised its 2021 CPO average selling price forecast to RM3,100 (+15%). It has kept its 2022 forecast at RM2,600.
“We will reflect these changes in our earnings per share forecasts throughout the upcoming results release, ” it added. Maybank has a preferred “buy” rating on Kuala Lumpur Kepong Bhd, Sarawak Oil Palms Bhd and Boustead Plantations Bhd
Source : The Star