Plantations - Malaysia sets CPO export tax at 4.5% in April 15
Recommendation: Neutral
We are not surprised by Malaysia’s decision to impose an export tax of 4.5% on CPO in April 2015 as the minister stated in Feb that it will be reinstating on 1 March 2015 the export duty structure for CPO after a 6-month suspension. The April export tax rate is in line with the existing CPO export duty structure. This will encourage the export of CPO before 1 April 2015 and could boost short-term palm oil exports. The higher CPO export tax is slightly negative for CPO producers, positive for downstream palm oil producers and neutral for integrated players. We maintain our CPO price forecast and Neutral rating on the sector. Our top picks are First Resources, SIMP and AALI
What Happened
Malaysia will impose a 4.5% export duty on CPO for April 2015, after seven months of duty-free CPO exports since Sep 2014. This is because CPO prices have risen and averaged RM2,288 per tonne from 10 February to 9 March 2015, which is above the price threshold of RM2,250 per tonne where CPO attracts an export tax.
What We Think
This news is not a surprise to us as (1) the Minister of Plantation Industries and Commodities had revealed to the media in Feb that the government will reinstate the export tax duty structure for palm oil on 1 March 2015 (after six months of suspension), (2) the export tax rate to be applied for April 2015 is in line with the Malaysian export tax duty structure which has been in place since 1 Jan 2013 (see Figure 1). To recap, the Malaysian government suspended the export duty structure in Sep 14 and extended the duty-free period to Feb 15, mainly to mitigate the sharp decline in CPO price during that time, by encouraging higher CPO exports to keep palm oil stocks manageable. Palm oil inventory in Malaysia has dropped from 2.1m tonnes at end-Sep 14 to 1.76m tonnes at end-Feb 15 and CPO prices have risen to average more than RM2,200 per tonne for the first two months of 2015. We believe the lower palm oil stocks and better CPO prices are the key reasons behind the move to reinstate the export duty structure. The 4.5% export tax in April may temporarily boost CPO exports before the higher export tax takes effect on 1 April 2015. The export tax will be a slight negative for pure planters which could receive lower domestic prices for CPO (international CPO price less export tax) and is potentially positive for downstream players which will enjoy higher processing margins due to the differential between the higher export tax on CPO against refined palm products (which attract zero export tax). However, the full picture of the impact of the higher Malaysian export tax on the export flow of palm products will depend to some extent on Indonesia’s export tax rate for April, which will be known during the last week of March. More interestingly, Indonesia is reportedly mulling a cut in the threshold price used to determine its monthly export tax for CPO, which could impact the competitiveness of Malaysia’s downstream industry.
What You Should Do
This development is a slight negative for planters as local CPO prices may fall to reflect the higher export tax in April. However, this will have minimal impact on our CPO price forecast, which has already taken into consideration the export tax. We maintain our Neutral rating on the sector
Source: CIMB Daybreak - 20 March 2015
Recommendation: Neutral
We are not surprised by Malaysia’s decision to impose an export tax of 4.5% on CPO in April 2015 as the minister stated in Feb that it will be reinstating on 1 March 2015 the export duty structure for CPO after a 6-month suspension. The April export tax rate is in line with the existing CPO export duty structure. This will encourage the export of CPO before 1 April 2015 and could boost short-term palm oil exports. The higher CPO export tax is slightly negative for CPO producers, positive for downstream palm oil producers and neutral for integrated players. We maintain our CPO price forecast and Neutral rating on the sector. Our top picks are First Resources, SIMP and AALI
What Happened
Malaysia will impose a 4.5% export duty on CPO for April 2015, after seven months of duty-free CPO exports since Sep 2014. This is because CPO prices have risen and averaged RM2,288 per tonne from 10 February to 9 March 2015, which is above the price threshold of RM2,250 per tonne where CPO attracts an export tax.
What We Think
This news is not a surprise to us as (1) the Minister of Plantation Industries and Commodities had revealed to the media in Feb that the government will reinstate the export tax duty structure for palm oil on 1 March 2015 (after six months of suspension), (2) the export tax rate to be applied for April 2015 is in line with the Malaysian export tax duty structure which has been in place since 1 Jan 2013 (see Figure 1). To recap, the Malaysian government suspended the export duty structure in Sep 14 and extended the duty-free period to Feb 15, mainly to mitigate the sharp decline in CPO price during that time, by encouraging higher CPO exports to keep palm oil stocks manageable. Palm oil inventory in Malaysia has dropped from 2.1m tonnes at end-Sep 14 to 1.76m tonnes at end-Feb 15 and CPO prices have risen to average more than RM2,200 per tonne for the first two months of 2015. We believe the lower palm oil stocks and better CPO prices are the key reasons behind the move to reinstate the export duty structure. The 4.5% export tax in April may temporarily boost CPO exports before the higher export tax takes effect on 1 April 2015. The export tax will be a slight negative for pure planters which could receive lower domestic prices for CPO (international CPO price less export tax) and is potentially positive for downstream players which will enjoy higher processing margins due to the differential between the higher export tax on CPO against refined palm products (which attract zero export tax). However, the full picture of the impact of the higher Malaysian export tax on the export flow of palm products will depend to some extent on Indonesia’s export tax rate for April, which will be known during the last week of March. More interestingly, Indonesia is reportedly mulling a cut in the threshold price used to determine its monthly export tax for CPO, which could impact the competitiveness of Malaysia’s downstream industry.
What You Should Do
This development is a slight negative for planters as local CPO prices may fall to reflect the higher export tax in April. However, this will have minimal impact on our CPO price forecast, which has already taken into consideration the export tax. We maintain our Neutral rating on the sector
Source: CIMB Daybreak - 20 March 2015
