Higher Indonesia taxes to boost palm oil futures

18 June 2007 06:13  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--Prices of crude palm oil (CPO) futures may rise in Asia after one of the world’s largest producers Indonesia slapped an additional 5% tax on its exports, market sources said on Monday.

The taxes could also lower feedstock prices for downstream oleochemical producers in Indonesia, they added.

Some traders were expecting the higher export taxes to drive up CPO prices on the newly launched Joint Asian Derivative Exchange (JADE) as well as Bursa Malaysia, although it was unclear how much prices would surge.

On Friday, Indonesia raised CPO export taxes to 6.5% from 1.5% and that for fresh fruit bunches and palm kernels were up 7% to 10%. Export taxes for crude olein, refined bleached deodorised (RDB) palm oil and RDB olein were raised to 6.5% from 0.3%.

"CPO prices would definitely surge these couple of days on the back of the announcement by the Indonesian government, but we might see a consolidation after that, as market prices find equilibrium," said Akshay Khandelwal, a palm oil trader based in Singapore.

The physical market would become more quiet over the next few days as buyers would likely bide their time to observe the market movements before committing to their positions, he added.

CPO futures, traded on Bursa Malaysia, underwent a volatile month, reaching peaks of $880/tonne FOB (free on board) Malaysia just two weeks ago before falling sharply to $700/tonne FOB on Wednesday.

However, other market players expected a more muted reaction.

"The very bad Malaysian export figures released last week by the Intertek Agri Services might numb the bullish effect [of the increased tax figures]," said Laren Tan, who heads the over-the-counter clearing and derivatives unit at brokerage Ginga Petroleum.

The recent strength in soy bean oil prices traded on the Chicago Board of Trade would also be an additional factor in price movements, he added.

Indonesia, the second largest CPO exporter in the world, is facing a shortage in domestic cooking oil supply which has been blamed on CPO producers who export the bulk of their production.

It has also slapped taxes on four derivatives which were previously exempted from export duties. Crude stearin, RBD stearin, palm kernel oil (PKO), and RDB PKO will be subjected to a 6.5% duty.

The taxes could lower domestic CPO and PKO prices and give downstream Indonesian oleochemical producers a slight edge over their competitors in the region.

"It is still too early to tell how we will be affected by the CPO export tax, but we are expecting that we will be able to negotiate for lower feedstock prices from CPO suppliers who would be less inclined to export the commodity," said a senior marketing official with a major Indonesian oleochemical producer.

By: Jeremiah Chan
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