MALAYSIA has been exporting less refined palm oil in recent years, resulting in a loss of global market share in palm oil exports.
This situation would continue to worsen as long as the current bad investment climate was not rectified, said KL Palm Services managing director Ling Chen Eng.
KL Palm Services, which is among the world’s top three palm oil brokerages, deals with traders from Malaysian and Indonesian plantation companies, as well as palm oil buyers in China, India, Europe and the United States.
In an interview with Business Times recently, Ling said the uncompetitive investment climate was due to a discount gap of US$15 (RM64.50) per tonne in the trade of various palm oil products between Indonesia and Malaysia.
“To bridge this discount gap, Malaysia’s multi-tiered crude palm oil (CPO) export tax, effective since January 2013, needs to be revised to level the playing field with Indonesia. This will ensure that Malaysia does not continue to lose its market share of palm oil exports to Indonesia,” he said.
Five months ago, Indonesia implemented palm oil levies ranging from US$10 to US$50 per tonne. Since then, the playing field is uneven and Malaysia has seen a loss of global market share in palm oil exports.
To level the playing field, Ling said the government should consider lowering the minimum threshold of the CPO export duty structure to RM2,100 per tonne from the current RM2,250 per tonne.
“There’s oversupply of vegetable oils and the final price of palm oil is now controlled largely by large end-buyers. They will give a price and if the potential supplier does not accept it, they will make a bid to another supplier.
“It’s a buyer’s market. Pricing is being done at consuming countries while palm oil exporters in Malaysia and Indonesia are bearing most of the fluctuation risks in vegetable oil prices, foreign exchange and freight rates.”
Ling observed that many traders at plantation companies were rigid in selling at the “spot plus 1 month” formula while buyers were quoting purchase prices as far ahead as mid-2016.
“Exports from Malaysia are not moving as fast as we want to because we are missing the market. Plantation company traders should try being more flexible.”
A bank-backed analyst concurred with Ling that refiners in Malaysia were facing brutal competition from Indonesian refiners after the republic implemented the palm oil levies in July last year.
“The CPO levies have benefited Indonesian refiners and they have grabbed the global market share of palm oil exports at the expense of refiners in Malaysia.”
The export levies of US$10 to US$50 per tonne for various palm oil products are in addition to export taxes that Indonesian oil palm planters pay when CPO prices exceed US$750 per tonne.
The export levies have lowered the domestic CPO price in Indonesia by US$30 to US$50 per tonne, helping to improve the processing margins of downstream processors. Refiners in Indonesia enjoy a margin advantage due to the differential in the export levy for refined palm products versus CPO.
The export levy gap for refined, bleached and deodorised (RBD) palm oil is US$30 per tonne (CPO levy of US$50 per tonne minus RBD palm oil levy of US$20 per tonne).
The analyst said government statistics revealed that Malaysia’s CPO share of total palm oil exports had gone up to 30 per cent from 16 per cent in 2010. This means that there are less raw materials available for local refineries.
“Malaysia’s CPO tax structure should be reviewed for the long term to sustain the health of the industry.
“Should the government revise the CPO export tax to take into consideration Indonesian CPO levies, it would be a short-term pain for oil palm planters as it could lead to slight dip in domestic CPO prices,” the analyst said.