Plantation companies with crude palm oil (CPO) export licence will soon be issued with an additional two million tonnes of duty-free CPO export quota by the Government, said an industry source.
The source said: “Surprisingly, the usual suspects top planters with palm oil refineries overseas such as IOI Corp, Sime Darby and Felda - are still not aware if they are getting the additional quota this time around.
“However, there is a prepared list and the official letter would soon be forwarded to the export licence holders,” the source told StarBiz.
According to the source, the Government typically would not issue additional quota in the middle of the year as the full year quota allocation would be decided in early January.
A quota of 3.6 million tonnes duty-free CPO was issued early this year. With the additional quota would translate into 5.6 million tonnes duty-free CPO export this year compared with 3.6 million tonnes last year.
The 5.6 million tonnes quota represents 27% of the country's total CPO production of 18.4 million tonnes, said the industry source.
The increase in the local duty-free CPO export quota was seen as the first pre-emptive measure by Malaysia to counter the impact from Indonesia's move to slash its export duty on refined palm oil products in September.
India responded to Indonesia's action last week by adjusting its import duty structure on refined palm oil products. It lifted the base price of refined palm oil imports to market prices from US$484 (RM1,535) per tonne.
The source said the rationale for the additional quota was an inventory management and price stabilisation mechanism given the current high CPO production, lower exports and the easing of CPO price to below RM3,000 per tonne.
“This move augurs well for pure CPO producers who can now look forward to higher short-term CPO prices but not so for standalone refiners who had been asking for the abolition of the duty-free CPO export quota,” he explained.
Palm oil refiners in Sabah are believed to be considering to charge a discount of RM100 per tonne CPO or more from CPO producers to enable their refineries to make some profit margin unlike their Indonesian peers who can sell refined products cheaper by RM300 to RM400 per tonne.
“So what will happen if the Sabahan oil palm growers refused to sell their CPO at a discount to the refiners? It will likely lead to higher CPO inventory in the country. This will nullify the Government's efforts to lower CPO inventory by giving higher duty-free CPO export quota,” he added.
It will be interesting to see Indonesia's next course of action in reaction to the latest moves by India and Malaysia.
Meanwhile, an industry observer said Malaysia would only agree to go beyond the stipulated 10% duty-free CPO export allowance if there are excess stocks which local refineries cannot take up.
However, the situation is peculiar because the standalone refineries in Malaysia were under-utilised, he pointed out.
Palm Oil Refiners Association (Poram) chief executive officer Mohammad Jaaffar Ahmad had said local refiners were affected by Indonesian export duty structure that provide advantage to exports of their processed oils.
Jaaffar said if the quota was to continueit would mean “slow death for some Malaysian refiners within one to two years.”
Malaysian Estate Owners Association (MEOA) president Boon Weng Siew also expressed disappointment over the Government's decision.
“I want to re-affirm MEOA's proposal to abolish the duty-free export quota for CPO and crude palm kernel oil (CPKO) and reduce the export duty for CPO and CPKO from the current 23% to 8%.
CIMB Research regional analyst Ivy Ng expected taxing times for refiners should Malaysia increased the tax-free CPO export quotas.
“It will be negative for local refiners as it would reduce the availability of domestic CPO and the already low refinery utilisation rate of 60.8% as at June.