FocusMalaysia PME producers seek CPO export tax change

16 July 2012 07:20  [Source: ICIS news]

By Heng Hui

Malaysia PME producers seek CPO export tax changeSINGAPORE (ICIS)--Malaysian biodiesel, or more specifically palm methyl ester (PME), producers are calling for a revision of the export tax structure for feedstock crude palm oil (CPO) cargoes in order to be cost competitive with the world’s largest PME producer, Indonesia.

Indonesia has imposed for July an export tax of 15% on CPO cargoes to encourage downstream derivatives production. This gives Indonesian biodiesel refiners access to a large supply of palm oil at prices below market levels, since there is a barrier to exporting CPO, said market participants.

However, biodiesel makers in Malaysia face higher feedstock costs as there is a 30% export tax imposed on CPO only after a duty-free limit of 3.6m tonnes, according to market sources.

Indonesian biodiesel makers can sell their PME at lower prices than Malaysian producers, since their feedstock cost is lower, said Malaysian PME converters.  

In 2011, Indonesian PME refiners exported around 1.4m tonnes out of their total production of 2.2m tonnes to Europe, mainly Spain and Italy, according to industry sources. The producers’ market share in Asia improved by around 25% and Indonesian PME exports accounted for around 97% of the Asian market.

In contrast, Malaysia's biodiesel exports were 50,000 tonnes in 2011, according to a local media report.

Only some of the 29 PME factories in Malaysia are still operating, and this is to support the local biodiesel mandate, not for exports, Malaysian PME refiners said. According to industry estimates, only 4-5% of the installed 2.7m tonne/year capacity in Malaysia is currently on line.

“It will be good if we could reform the tax structure to something similar to Indonesia’s, or increase the export tax for CPO to a sufficient level such that the cost of PME manufacture in Malaysia becomes competitive with Indonesian PME,” a Malaysian biodiesel maker said.

With such an export tax in place, Malaysian biodiesel makers will enjoy lower-priced feedstock and be able to compete on the same level, he explained.

However, a biodiesel trader said it is unlikely that any action will be taken before the Malaysian election, since the move will benefit only a few biodiesel corporations and anger many small palm oil farmers, driving away votes.

“It’s a political issue. It’s unlikely the government would introduce any tax in the near term because this would greatly depress CPO prices. The government would become greatly unpopular since the country’s stock exchange has also just listed one of the world’s biggest IPO [initial public offering] of palm oil giant Felda,” the trader said.

A biodiesel maker in Malaysia said the domestic biodiesel mandate will bring about some demand, but it will be slow. The mandate is currently only enforced in five states in western Malaysia: Putrajaya, Malacca, Negeri Sembilan, Kuala Lumpur and Selangor.

However, a market participant in Malaysia pointed out Indonesian’s CPO refining capacity is rapidly expanding at a rate far beyond the actual CPO production, and demand for CPO raw material in Indonesia will increase, boosting the prices of CPO and hence PME in Indonesia.

However, it remains unlikely that Indonesia CPO prices will increase to the extent that the costs of PME production become on par with Malaysia’s, market sources added.

Southeast Asian PME producers include Wilmar and Musim Mas.


Author: Hui Heng



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