Malaysia, the world’s second-biggest palm-oil producer, will reduce the export duty on the crude variety and abolish a duty-free shipment quota from Jan. 1, according to the government. Futures dropped.
The cut will allow the industry to compete with other exporting countries, the Ministry of Plantation Industries and Commodities said in a statement today. The new rates will range from 4.5 percent to 8.5 percent, rising as prices climb from 2,250 ringgit ($736) a metric ton to 3,600 ringgit, Minister Bernard Dompok said. The existing rate is 23 percent.
Palm oil, used in food, detergents and biofuels, has plunged since the end of August as the global economic slowdown cut demand in China and Europe, driving reserves to an all-time high. Inventories in Malaysia jumped 17.4 percent to a record 2.48 million tons in September from August, the Malaysian Palm Oil Board said. Indonesia is the largest producer.
“Malaysia is following our tax policy,” Indonesian Deputy Trade Minister Bayu Krisnamurthi said by phone. “The move will add supply and increase pressure on prices. We will study the situation and see how this will impact us.”
Palm oil for December delivery fell 0.9 percent to close at 2,500 ringgit, paring losses of as much as 5.7 percent after the announcement. Futures dropped 16 percent last month as inventories climbed, the biggest drop since October 2008. Sime Darby Bhd. (SIME), the biggest listed producer, fell 0.5 percent to 9.72 ringgit in Kuala Lumpur trading.
While Malaysia’s duty-free export quota was 5 million tons this year, only half had been used, Dompok said on Oct. 3. The changes were welcomed by the refining industry where more supply will help utilization rates, said Mohammad Jaaffar Ahmad, chief executive officer of the refiners association.
Indonesia’s tax changes last year made local crude palm oil cheaper than in Malaysia, cutting costs for refiners. The country, Southeast Asia’s largest economy, reduced the maximum export tax on refined, bleached and deodorized, or RBD, palm oil to 10 percent from 23 percent. The rate for RBD palm olein was cut to 13 percent from 25 percent, while the highest tax for crude oil was set at 22.5 percent.
The duties are applied on a sliding scale depending on world prices. The tax this month is 13.5 percent on a base price of $927 a ton and the government will decide the November duty at the end of this month.
The Malaysian government is consulting with relevant parties to implement the B10 program to blend 10 percent of palm oil biodiesel with petroleum diesel for the “unsubsidized sector,” it said. That will increase consumption of crude palm oil by a further 300,000 tons a year, it said.
The government is also studying incentives to replace old and unproductive trees, and an estimated 100,000 hectares need to be replanted, reducing supply by 300,000 tons, it said.
The nation will continue with measures to strengthen the industry to ensure growers receive “remunerative income,” especially smallholders. They represent almost 40 percent of the 5 million hectare area, it said.
To contact the editor responsible for this story: James Poole at firstname.lastname@example.org