Crude palm oil declines on Indonesia govt's export duty cut

Export tax on crude palm oil was cut to 9% for Nov from 13.5% in Oct

Reacting sharply to the Indonesia government’s decision to cut export duty, crude palm oil (CPO) declined in early Tuesday trade on the Multi Commodity Exchange (MCX).

The commodity for delivery in December fell by 1.84% to Rs 437 per 10 kgs.

CPO in the benchmark Bursa Malaysia declined marginally by 20 ringgit to trade at 2330 ringgit a tonne in mid-afternoon Malaysian session. Meanwhile, analysts believe that Malaysian palm oil still targets 2,379 ringgit per tonne, as a rebound from the October 3 low of 2,230 ringgit has completed and a preceding downtrend has resumed.

The government of Indonesia cut export tax on crude palm oil (CPO) to 9% for November from 13.5% in October. The reduction in duty, however, is expected to help cut edible oil prices at least by Rs 5 a kg.

 

India imports over 9 million tonne of veg oil to meet its estimated annual demand of 15.5 million tonne. Indonesia being the largest source of veg oil imports to India, tax reduction would provide a much needed relief to Indian consumers.

The government of Indonesia, three years ago, levied 19% export duty on CPO while the duty on refined oil was fixed at 9% in order to promote local refineries there. Since then, Indian veg oil refineries were struggling to become viable. The Indian government also kept its tariff, the price for calculating import duty, unchanged for over 6 years at around one third of the current prevailing price as on today. Last month, however, the Indian government made import tariff market linked with the aim to collect funds in its kitty.

According to trade sources, the overall impact would be positive to Indian consumers.

Indonesia, the world’s largest palm oil producer, reviews the tax rates and base export prices every month to make it closer with the movement in its price in the spot market.

The duty is based on average rates in Kuala Lumpur, Rotterdam and Jakarta. Palm oil on the Malaysia Derivatives Exchange, the global benchmark, has fallen 7% so far this year on a drastic decline in demand due to the sovereign debt crisis in Europe and a slowdown in China.

B V Mehta, Executive Director of the Solvent Extractors’ Association (SEA), however, feels that most of edible oil prices have declined by around 14% year on year.

Import of vegetable oils (edible and non-edible) during first eleven months of current oil year indicates 17.80% increase in import as per data compiled by SEA showed.

Import during September 2012 is reported at 993,912 tonne compared to 912,341 tonne in September 2011, consisting of 976,417 tonne of edible oils and 17,495 tonne of non-edible oils i.e. up by 8.94%. The overall import of vegetable oils during the period between November 2011 and September 2012 was reported at 9,156,457 tonne compared to 7,773,184 tonne, a rise of 17.80%.

Meanwhile, palm oil inventories in Indonesia, the world’s largest producer rose to record 3 million tonne at the end of September this year, around 50% more than the
usual level, due to weak global demand on sluggish global economy.

Total CPO output in Indonesia is estimated to rise 6-10% this year to 25-26 million tonne.