CPO buyers switch to KL after Jakarta tax change

KUALA LUMPUR: Foreign buyers sold back at least 200,000 tonnes of Indonesian crude palm oil (CPO) to refiners since mid-September when Jakarta slashed export taxes on the processed grade and made minor cuts for duties on the crude grade, traders said yesterday.

The buyers - including trading houses and processors - have switched over to Malaysian CPO from plantations who have not finished their tax-free export quota on the grade, traders from Indonesia and Malaysia said. 

Malaysia, the world's No. 2 producer, imposes very high export taxes on CPO to protect its refining industry but has allowed for firms such as Felda, Sime Darby and IOI Corp to export the grade without any duties.

The market feared the Malaysian export quota would squeeze global CPO supplies further as top producer Indonesia cut its refined palm oil export tax to jump-start its processors, leaving less of the crude grade for shipment.

"At first I thought the quota was going to be a stumbling block, but it seems the Malaysian palm oil companies still have it. My seller says don't worry, you can buy, we can sell," said a Malaysian trader with a key palm oil processor. "Just watch Malaysian crude palm oil exports in October. It will jump a lot because a lot of people are selling Indonesian crude palm oil back and buying Malaysian crude," the trader added.

The higher demand for CPO will cut into rising stock and possibly lift benchmark Malaysian palm oil futures that have fallen more than 25 per cent this year on fears of another global recession.

The government sets the annual quota, and this year it was pegged at 3.3 million tonnes. In the first nine months of 2011, Malaysian CPO exports stood at nearly 2.5 million tonnes, according to data from Societe Generale de Surveillance, and leaving at least 800,000 tonnes available.

"The quota always gets exceeded and these palm oil companies will ask the go-vernment to raise the quota, which is always granted," said a second Malaysian trader.

"This year especially, with the new Indonesian export tax coming into, it is bound to go higher," he added.

Commodities Minister Tan Sri Bernard Dompok said in August that the government had a "flexible view" to the tax-free crude palm oil export quota in order to keep the industry market driven, as the grade is in high demand in Rotterdam.

Buyers are selling back Indonesian CPO to refiners mostly in Sumatera and Java island at the same price the cargoes were contracted at.

The buyers, including Western trading houses and processors, make enquiries with Malaysian firms who will offer local CPO that is now at US$890 (RM2,812) a tonne, a 7 per cent discount to Indonesian FOB export grade.

"Once you add in some profit margins, Malaysian palm oil for export grade is about US$15 (RM47) chea-per compared to Indonesian palm oil," said a trader with a Malaysian plantation firm with a tax free export quota. - Reuters

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