Zero Duty Boosts CPO Prices

THE impact from the imposition of zero export duty on crude palm oil (CPO) by Malaysia, and more recently Indonesia, has been gradually reflected in the current CPO price, which has gained some ground after falling to a five-year low last month.

In fact, international commodity trader Dorab Mistry told a Global Oils conference in Mumbai last week that for CPO futures to regain its competitiveness, the prices will need to drop to RM1,900 per tonne to revive consumption from major buyers.

Hence, the removal of CPO export duty is meant to make palm oil more competitive, he points out.

Malaysian Palm Oil Council chairman Datuk Lee Yeow Chor concurs that the effect of Malaysia and Indonesia’s recent policies to exempt CPO export duty will be positive on CPO prices going forward.

He is also optimistic that the CPO prices would rise towards year-end and next year.

“The CPO price, which has fallen to a five-year low just slightly above RM1,900 per tonne last month, has now increased by about 15% to an average of RM 2,230 per tonne.

He describes the duty exemption would result in a level playing field as well as a healthy competition between Malaysia and Indonesia, being the world’s largest palm oil producers.

The zero export duty on CPO by Malaysia could help increase the export volume of CPO, says Lee who expects a steady demand for palm oil by China given the upcoming Chinese New Year festival.

On the other hand, he points out that the increase in the export volume of CPO would result in a decline in the export volume of refined palm oil.

He believes that this is due to the negative refining margins among the palm oil refining industry players.

According to Lee, Malaysia need to be careful that there is a certain balance in maintaining the export volume between CPO and the refined palm oil.

Meanwhile, Malaysian Palm Oil Association (MPOA) chief executive officer Datuk Dr Makhdzir Mardan describes the recent exemption on Malaysia’s export duty on CPO for September and October this year as a reprieve for CPO producers and exporters.

“Particularly for the upstream stakeholders, in view of the anticipated peak CPO crop in October-November.

“This near-term measure will certainly help to alleviate the escalating end-month stocks towards the end of the year,” adds Makhdzir.

On the flip side, he expects the palm oil industry to experience the same phenomenon of peak production during the last quarter of the year with the peak crop months and high carryover stocks at the end of the year.

Towards the end of every year, Sabah and Sarawak are faced with the situation of inadequate infrastructure and logistics as well as the lack of availability of vessels for shipments of both crude and processed palm oils, in view of the wintering months and the high demand for crude petroleum products, hence consequently leading to “very high” carrying palm oil stocks, explains Makhdzir.

The situation of high stocks in mills and refineries in East Malaysia during the peak crop months is inevitable and coupled with the slow off take towards the end of the year; the industry is seriously hampered especially for the smallholders.

The slow off-take will also result in the slowdown in reception of CPO by refineries.

“It was during such times that palm oil mills in East Malaysia are not able to accept FFB from third parties when their storage tanks are full.

“The non-acceptance of FFB by millers would lead to no income and FFB being left to rot in the estates.

“The quality deterioration would set in and all the above would pose as a setback to the industry, as a whole,” he adds.

While the duty exemption will encourage CPO exports and helped ease the high carrying over stocks, which is the main determinant in pressuring prices, Makhdzir says there needs to be a more assertive policy instrument that can serve as a dynamic mechanism and long term strategy which will benefit the palm oil industry and the economy of the country. “The primary strategy here should be stock management.”

He points out that a more proactive and assertive biodiesel initiative for renewable energy policy is expected to serve as an instrument for a positive change to the policy of CPO excess stock management system.

Seemingly, the duty exemption may achieve its objective for September.

For October, in view of the current price development, Makhdzur says it is known by international palm oil buyers that the duty will be nil as “it would fall below the threshold price of RM2,250 per tonne.”

The international palm oil market is a continuous and on-going trade and we are all aware that European buyers buy far ahead while other consuming countries do buy at least one to three months ahead, for example, India for the Deepavali festival.

In addition, the nomination of vessels is not on an “available when required basis”.

Therefore, while there is export duty exemption for September and October but “there may not necessary be vessels availability during this period,” adds Makhdzir.

“As such, the palm oil industry players may be unable to capitalise on these opportunities. Therefore, a comprehensive approach is needed to address this excess stockpile issue which has become a permanent feature to the palm oil industry.”

He believes that the biodiesel policy can mop up the perennial excess CPO stockpiles, and that it is an opportunity for a solution.


Source : The Star

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