KUALA LUMPUR: On January 8 the government suspended export taxes on crude palm oil (CPO) for three months, a move Mah Siew Keong, the minister of plantation industries and commodities, described as a short-term, pre-emptive step to increase the product’s competitiveness in global markets. Export duties are imposed on all palm oil exports above RM2250 ($568) per tonne at a rate determined by a monthly reference price. The January reference price saw the tax stand at around 5.5%. Suspension of the duty will save CPO exporters around $36 per tonne for shipped products, according to the Ministry of Plantation Industries and Commodities, and increase Malaysia’s competitiveness on the global markets. The country is the world’s second-largest palm oil producer after Indonesia, whose CPO exports are subject to a $50-per-tonne levy. Sales could be boosted by up to 15% over the period, according to some analysts, and could also benefit from seasonal upswings in demand from key markets, such as China and India. In tandem with increasing export competitiveness and sales, the measure also aims to reduce stockpiles of palm oil, an issue that has weighed on the industry in recent times. Palm oil stocks in storage reached two-year highs at the end of December, rising by 59% year-on-year (y-o-y) to total 2.7m tonnes, according to the Malaysian Palm Oil Council. The build up was largely attributed to good harvests and an increase in imports during 2017, rather than a slump in sales. In fact, exports over the first 11 months rose by 2.4%, despite a tapering off of activity late in the year. The export tax holiday, which is scheduled to end on April 7, could be brought forward if stockpiles are reduced to around 1.6m tonnes, the government said, though production forecasts indicate that output from the country’s processing plants will continue to top up reserves in the months to come. The high inventory level has weighed on commodity prices, which dropped by about 20% over the course of 2017, subsequently affecting earnings. The tax measures had a positive effect on palm oil futures on the Bursa Malaysia Derivatives Exchange, with benchmark contract prices for March delivery edging up 1.2% on the day the tax break was announced, though it is unclear whether the raised pricing level will be sustained.
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