M'sia, Indonesia move to impose zero duties on CPO

Selangor: Malaysia and Indonesia, the world's two largest producers of crude palm oil (CPO), are now playing the game of zero duties on CPO exports in efforts to bring down the huge build-up in palm oil stocks amid current weak prices and the narrowing of the CPO price discount to soybean. Malaysia recently announced that it would revert to zero duties on CPO exports for May, after having recently reimposed a 4.5pc export duty on CPO for April. Malaysia's CPO export duty regime had been suspended from September 2014 to March 2015.

Indonesia, meanwhile, had started to impose zero duties on its CPO exports since March. The world is sitting on some six million tonnes of palm oil stocks, said palm oil expert M R Chandran.

As at end-March, Indonesia's CPO stocks were pegged at about 2.1 million tonnes and Malaysia at 1.87 million tonnes, while top CPO importers China and India were holding some two million tonnes of CPO stocks.

"With palm oil production set to rise in the coming months, many also fear a huge build-up in palm oil stocks in the coming months," Chandran said.

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For Malaysia, he said palm oil stocks for April were slated to breach the two million-tonne mark should the harvesting of crops improve.

This could further drag down the CPO price, which has fallen by about 19pc so far this year.

Another bearish factor is the narrowing of the CPO price discount to soybean at US$58-US$59 per tonne currently compared with the average price discount of US$180 per tonne in the past 10 years.

"The narrowing of the price discount makes it more attractive for the world's top edible oil importers, China and India, to purchase soybean rather than CPO," added Chandran.

On a positive note, he said the only factor that was holding the CPO price above RM2,000 per tonne currently was the weakening of the ringgit against the US dollar. The three-month benchmark CPO futures for June contract closed RM12 higher at RM2,160 per tonne.

Meanwhile, Kenanga Research in its latest report highlighted that Malaysia's CPO export duty could be zero percent for May.

The average CPO freight-on-board prices for the last 15 days of March together with the first 10 days of April was RM2,219 per tonne, which is below the RM2,250-per-tonne price threshold to implement CPO export taxes.

Under the domestic CPO export duty structure, the CPO exports will be taxed from 4.5pc onwards when the CPO gazetted price is higher than the RM2,250-per-tonne threshold price.

According to Kenanga Research, some CPO sellers could be holding back their CPO exports until then, as the export tax (at 0pc) could become attractive next month.

Hence, the research unit is expecting exports to improve by 6pc to 1.25 million tonnes in April due to re-stocking activities and Malaysia's tax advantage.

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"We think that countries with colder climates such as China and Europe should see better demand going forward due to stock replenishment after the winter months." On the other hand, the CPO price weakness will likely persist.

Kenanga Research said CPO prices could continue to trade between the RM2,100 and RM2,200-per-tonne range in the near term, following expectations of higher inventory in April, declining soybean prices and low crude oil prices.

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