Indonesia Palm-Oil Duties Hurt Malaysia Refiners, Oil World Says

Indonesia's policy to boost shipments of processed palm oil by charging lower export duties than on crude palm oil is hurting margins for refiners in Malaysia, Oil World said.

The differential export-tax rate has given Indonesian processors a competitive advantage against Malaysian palm-oil refiners, the oilseed researcher said.

Indonesia has cut maximum export duties on processed palm oil to 13 percent from 25 percent, while the top rate for crude palm oil was set at 22.5 percent, Hamburg-based Oil World said. Indonesian exports of processed palm oil surged 29 percent in 2011's fourth quarter to 2.9 million metric tons as crude-oil shipments slid 23 percent to 2.28 million tons, it said.

"The Malaysian palm-oil processing industry is in jeopardy unless the government changes the framework of the differential export taxes on crude and processed palm oils similar to those in Indonesia," Oil World said.

Indonesia's export-tax policy raised processing margins in the country and prompted a "rapid" increase in refining capacity, while Malaysian capacity utilization has declined, according to Oil World.

Malaysia in February announced a quota for duty-free exports of 3.6 million tons of crude palm oil, aiding plantation owners, and may be under pressure to allow further untaxed shipments, the oilseed researcher said.

Margin Pressure

"This is not a solution in the long term," Oil World said. "The major problem lies in the squeeze on processing margins of the refining industry."

Duty-free exports of crude palm oil make Malaysia's domestic refiners even worse off, and refining margins in the country turned negative in recent weeks, the report showed.

"Particularly the standalone refiners are in a very critical situation, while those refineries integrated into a plantation can survive owing to the profits made from the production of crude palm oil," the researcher said.

Processed oil accounted for a record 56 percent of Indonesia's total palm-oil exports from October through December, compared with 43 percent a year earlier and 41 percent in the fourth quarter of 2010, Oil World said.

"It is obviously the ultimate goal of the Indonesian government to process domestically a much larger portion of the country's crude palm oil production by setting this differential export-duty regime," it said.

Refiners in India and China also face slipping margins as a result of Indonesia's policy on taxing exports of processed palm oil, according to the researcher.