Plantations - Indonesia plans levy of US$50 per tonne on CPO exports
Recommendation: Neutral
Indonesia is reportedly planning to impose a levy of US$50/tonne on exports of CPO at the zero export tax rate to fund the biodiesel mandates. This is a departure from the earlier reported plans of lowering the CPO price threshold for the export tax. We think the new proposal will provide the government with more stable tax revenues at low CPO prices. Our preliminary assessment is that such a move would be negative for upstream producers, positive for downstream producers and neutral to slight negative for integrated players in Indonesia in the short term. However, this could be offset by medium-term gains from higher CPO prices, if the tax collected can help boost biodiesel consumption significantly. Maintain Neutral. First Res, AALI and SIMP are our top picks.
What Happened
According to a Reuters report, Indonesian officials are preparing new rules for a charge of US$50 on every tonne of CPO shipped at the zero export tax rate, with the funds going to help pay for biodiesel subsidies announced in recent weeks. “At any CPO price, we will take US$50 per tonne,” Sofyan Djalil, Chief Economic Minister of Indonesia, said, making clear that when the CPO export tax kicks in, the government would still allocate US$50 a tonne to its biodiesel fund from the revenue it earns. The measure will go to Indonesian President Joko Widodo for approval when he returns on 30 Mar. To secure processing supplies, Djalil said the government may also require CPO producers to allocate 15% of total output for domestic use but gave no further details. Last week, media reported that the Indonesian government was looking to lower the threshold CPO price for the monthly export tax to US$500-600 per tonne.
What We Think
We expect the levy of US$50 per tonne to provide the Indonesian government with more stable revenues when the export tax on CPO is zero compared to the previous plan of lowering the CPO price threshold for CPO export tax (see Fig 1 for Indonesian export tax table). Our rough calculation suggests the Indonesian government could potentially collect revenues of US$500m from the CPO tax levy alone. It is unclear at this juncture if exports of refined palm products will attract a levy. According to Detik Finance, exporters of refined palm products may have to pay a levy of US$30 per tonne. If this is implemented, it is likely to be negative for the pure upstream palm oil players (CPO price in Indonesia could trade at as much as US$50 per tonne below the international CPO price), positive for downstream players (enjoy a wider processing margin: the tax levy differential between processed palm products and CPO) and neutral to slight negative for the integrated palm oil players in Indonesia. However, this levy could be a medium-term positive for CPO players, if it is successful in boosting biodiesel demand, resulting in stronger CPO prices.
What You Should Do
It is too early to assess the earnings impact on the players until the full tax levy on all palm products and utilisation plan of the funds are revealed. Our current CPO price assumptions for Indonesian planters, which already include relevant export tax rates for Indonesia, are unlikely to be affected by this move. However, the potential tax levy may impact CPO prices in Indonesia, which is currently at zero export tax, in the coming months. We will review our CPO price assumptions and latest developments in the sector soon.
Source: CIMB Daybreak - 23 March 2015
Recommendation: Neutral
Indonesia is reportedly planning to impose a levy of US$50/tonne on exports of CPO at the zero export tax rate to fund the biodiesel mandates. This is a departure from the earlier reported plans of lowering the CPO price threshold for the export tax. We think the new proposal will provide the government with more stable tax revenues at low CPO prices. Our preliminary assessment is that such a move would be negative for upstream producers, positive for downstream producers and neutral to slight negative for integrated players in Indonesia in the short term. However, this could be offset by medium-term gains from higher CPO prices, if the tax collected can help boost biodiesel consumption significantly. Maintain Neutral. First Res, AALI and SIMP are our top picks.
What Happened
According to a Reuters report, Indonesian officials are preparing new rules for a charge of US$50 on every tonne of CPO shipped at the zero export tax rate, with the funds going to help pay for biodiesel subsidies announced in recent weeks. “At any CPO price, we will take US$50 per tonne,” Sofyan Djalil, Chief Economic Minister of Indonesia, said, making clear that when the CPO export tax kicks in, the government would still allocate US$50 a tonne to its biodiesel fund from the revenue it earns. The measure will go to Indonesian President Joko Widodo for approval when he returns on 30 Mar. To secure processing supplies, Djalil said the government may also require CPO producers to allocate 15% of total output for domestic use but gave no further details. Last week, media reported that the Indonesian government was looking to lower the threshold CPO price for the monthly export tax to US$500-600 per tonne.
What We Think
We expect the levy of US$50 per tonne to provide the Indonesian government with more stable revenues when the export tax on CPO is zero compared to the previous plan of lowering the CPO price threshold for CPO export tax (see Fig 1 for Indonesian export tax table). Our rough calculation suggests the Indonesian government could potentially collect revenues of US$500m from the CPO tax levy alone. It is unclear at this juncture if exports of refined palm products will attract a levy. According to Detik Finance, exporters of refined palm products may have to pay a levy of US$30 per tonne. If this is implemented, it is likely to be negative for the pure upstream palm oil players (CPO price in Indonesia could trade at as much as US$50 per tonne below the international CPO price), positive for downstream players (enjoy a wider processing margin: the tax levy differential between processed palm products and CPO) and neutral to slight negative for the integrated palm oil players in Indonesia. However, this levy could be a medium-term positive for CPO players, if it is successful in boosting biodiesel demand, resulting in stronger CPO prices.
What You Should Do
It is too early to assess the earnings impact on the players until the full tax levy on all palm products and utilisation plan of the funds are revealed. Our current CPO price assumptions for Indonesian planters, which already include relevant export tax rates for Indonesia, are unlikely to be affected by this move. However, the potential tax levy may impact CPO prices in Indonesia, which is currently at zero export tax, in the coming months. We will review our CPO price assumptions and latest developments in the sector soon.
Source: CIMB Daybreak - 23 March 2015
