Refiners seek CPO quota clarification

This is written  by my colleague Rupa Damodaran.

KUALA LUMPUR: Local palm oil refiners are disappointed with the Plantation Industries and Commodities Ministry's rationale for the increase in the export quota of duty-free crude palm oil (CPO).

Palm Oil Refiners Association of Malaysia (Poram) is seeking justification for the additional two million tonnes in export quota for the CPO, which brought it to a total of five million tonnes this year. 

"Does it mean that the first three million tonnes have been fully utilised?" asked its chief executive officer Mohammad Jaaffar Ahmad. 

Poram, he said, was taken aback by the decision, which it learnt from news reports.

The ministry announced on Wednesday that the move was a temporary measure to address the falling market share contributed by Indonesia's export tax structure on palm oil products and also as a stock management tool.

The drop in market share is due to Indonesia's RBD (refined, bleached and deodorised) palm olein being cheaper by US$60 to $70 (RM187 to RM219) per tonne. At that level, refiners in Malaysia lose money when they refine or fractionate CPO.

RBD palm olein, which is obtained by fractionating RBD palm oil to separate the liquid parts (olein) from the solid parts (stearin), is used as frying oil for the food industry.

In the case of Indonesia, refiners buy CPO at a 15 per cent discount (because of export tax on CPO of 15 per cent).

"Unless this differential is corrected, there will be a build-up of CPO stock because refiners will continue to make a loss in running their plants as we cannot afford to consume more CPO," said an affected refiner.

Poram members said since early this year, some refineries had been running at only between 30 per cent and 50 per cent capacity, which they described as not a "profitable rate of utilisation". 

The ministry's revised CPO production from 19.4 million tonnes to 18.5 million tonnes for 2012, he said, meant that the monthly palm oil stock averaged about an extra 202,000 tonnes between the first six months of the year.

Based on the ministry's three per cent production increase to 10.621 million tonnes for the remaining six months, he said CPO production would amount to 303,000 tonnes. "Divided by the remaining six months, this would total 50,500 tonnes a month. If we add this 50,500 tonnes into the monthly average palm oil stock of 1.895 million tonnes, it will amount only to 1.945 million tonnes."

This, argued the refiner, would not have any bearing on the price level of CPO as this had all been factored into the futures CPO market well into November 2012 (averaging at RM 3,000 per tonne).

"Our question is why we are exporting CPO duty-free when we stand to lose RM660 per tonne (assuming the average CPO price is RM3,000 x 22 per cent export duty) in terms of uncollected tax? 

"Unless such a move will increase the price of CPO to RM3,660 per tonne, then we are even... which would be good for the country at large," he said.

"If the end result is that we are supporting the current price at an average of RM3,000 until the end of the year, this would mean we are throwing an extra RM1.32 billion for such an exercise (two million tonnes CPO x RM 660).

"The industry (at Palm Oil Lab) also proposed a new tax structure in line with the suspension of CPO duty-free quota. Why was this not considered?" he asked.

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