KUALA LUMPUR: Crude palm oil (CPO) futures on the Bursa Malaysia Derivatives Exchange (BMD) dropped further yesterday on news that Indonesia would be cutting its export tax on CPO next month.

The contract for delivery in July dropped 2.2% to RM2,294 a tonne here, closing for the first time below the RM2,300 level this year.

This came about following news that CPO exports from Malaysia would fall after news emerged that Indonesia will be lowering CPO export tax to 9% next month from 10.5%.

According to Ker Chung Yang, an analyst at Phillip Futures Pte in Singapore, Malaysia is expected to keep the export tax rate unchanged.

“Malaysia is facing the general election on Sunday and I do not believe there will be any change in the export tax rates at least until the general election is over.

“There could be a change maybe sometime after May or June,” he said when contacted.

This will give Indonesia the ammunition on the tax front, he added, noting that the export numbers may not be impressive over the next couple of months.

This will result in a “high stockpile” in the future, Ker warned.

Malaysia, the world’s second largest palm oil producer after Indonesia, announced in October last year it would slash CPO export taxes from 23% to within a range of 4.5% to 8.5%, depending on market prices.

This tax structure took effect from January this year and was subject to a threshold of RM2,250 a tonne.
Below the threshold, there is no export tax on CPO.

The move was intended to reduce the high stockpile of CPO and help refiners grab back market share from competitors in Indonesia, which implemented a new export tax structure on palm products in 2011.

The tax structure gave a boost to refiners there as their margins expanded many times over, which caused Malaysian refiners to lose their competitiveness.

Malaysia derived the May export tax rate from a reference price of RM2,347.26 (US$775) a tonne for CPO.

This amount is in the minimum band for a levy to be applied, according to a Customs Department statement on the Malaysian Palm Oil Board website.

According to a futures broker, the BMD coming down below the RM2,300 mark has forced some liquidation.

“BMD has failed the violation of the psychological support at the RM2,300 levels that has prompted some liquidation and selling interest to emerge in the market,” said the futures broker, who works with RHB Investment Bank Bhd.

It was reported that exports from Malaysia fell 4% to 648,275 tonnes in the first 15 days of this month.

The contract for July has dropped as much as 1% to RM2,293 per tonne on the BMD.

Earlier this month, the Malaysian Palm Oil Board said total palm oil exports increased 10% to 1.54 million tonnes in March, the first monthly gain in five months, but inventories declined to a seven-month low of 2.17 million tonnes.

This article first appeared in The Edge Financial Daily, on April 30, 2013.