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Threat to local palm sector [04-08-2011]  
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Local palm oil downstream players in the refining, oleochemicals and biodiesel sectors will likely see their operations rendered as uncompetitive with stagnating profit margins following Indonesia’s latest proposal to restructure its palm oil export duty on refined palm-oil products.

The proposed duty structure will be 10 basis point lower, based on the average crude palm oil (CPO) spot prices at the Rotterdam market.

Workers unload oil palm fruit from a truck into a plant in Sumatra. Indonesia plans to restructure its palm oil export duty on refined palm-oil products. - Reuters

An industry source told StarBiz: “Even without the latest proposal, the existing Indonesian palm oil export duty structure has become an increasing threat to Malaysia’s RM6bil palm oil downstream industry.”

This has prompted the Palm Oil Refiners Association of Malaysia (PORAM), Malaysian Oleochemical Manufacturers Group (MOMG) and Malaysian Biodiesel Association (MBA) to urge the Government to quickly come up with an appropriate solution to settle the issue within the next one month.

The associations claim that the CPO price to refiners (from March 9 to March 15) for Malaysia is about US$1,154 per tonne (without duty) while in Indonesia, the discounted CPO price less duty was about US$839.75 per tonne.

“Urgent action is required to address the differential duty being practiced in Indonesia.

“The Government should consider providing export incentive mechanisms to local downstream players and implement a long-term workable solution that maintains Malaysia’s export competitiveness,” said the source.

It is understood that the Government was currently in the midst of appointing a consultant to look into the matter and will work closely with the Malaysian Palm Oil Board (MPOB).

The proposed mechanisms made by PORAM, MOMG and MBA to the Government include for plantation companies to sell CPO for the targeted palm oil downstream product producers at a RM600 per tonne discount over MPOB’s monthly average price and offset it against the planters’ windfall profit tax payment.

The Government should also consider a duty drawback equivalent to the CPO export tax from Indonesia. Another suggestion is for the Performance Management and Delivery Unit to provide a grant of RM600 per tonne of total palm oil downstream products exported per year to the targeted palm oil downstream companies.

The collection of the grant should be on a monthly basis based on the actual quantity exported.

Meanwhile, industry consultant M.R. Chandran said: “Indonesian palm oil refiners will stand to reap an additional 5% to 8% higher profit margins should the proposed new duty structure get the green light.”

The traditional operating profit margins among palm oil refiners in Malaysia and Indonesia is 3% to 6%.

The raw material – CPO – will also become more cheaper in Indonesia with the proposed duty structure.

As it is, the tradititional price difference between Indonesia CPO is US$120 to US$150 per tonne lower than its Malaysian counterpart, said Chandran.

“The cheaper source of raw material in Indonesia will likely attract many Malaysian downstream players to relocate their plants to the republic to take advantage of the attractive duty structure,” he added.

Apart from the refining, oleochemicals and biodiesel, a member of MOMG also expects recent investments in products such as cocoa-butter equivalent, cocoa-butter substitute and cocoa-butter replacer would be deemed non-competitive “even before these players go into commercial production.”

Source:THE STAR
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