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NEWS UPDATES Asean Affairs                   19  September 2011

Export duty hurting palm oil trade

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There is an immediate need for the Malaysian government to review downwards the crude palm oil (CPO) export tax structure, which has been unchanged since the 1970s, says Palm Oil Refiners Association (Poram) chief executive officer Mohamad Jaaffar Ahmad.

This is in light of the intense competition brought on by Indonesia which has slashed more than half of its export duty on CPO refined products last Thursday.

Jaaffar said the Government must address the uncompetitive environment following the supply of "cheaper incoming" CPO and "competitive outgoing" refined palm products such as RBD (refined, bleached and deodorised) palm olein from Indonesia.

Indonesia has reduced its export duty on RBD palm olein in bulk to 7 percent from 15 percent while the export duty on CPO was unchanged at 15 percent.

Jaaffar said that the lower export duty meant that the Indonesian exporters were able to offer refined palm products at "very" competitive prices compared with the local exporters.

The price of Indonesian RBD palm olein FOB based on the 15 percent export tax was US$1,159 per tonne compared with US$1,162 per tonne from Malaysia.

However, the reduced tax at 7% would allow Indonesia's RBD palm olein to be sold at US$1,091 per tonne or at least US$71 cheaper than local RBD palm olein, added Jaaffar.

The total cost of processing/refining CPO into RBD palm olein among Indonesian refiners would also be lower by at least US$100 or at an estimated US$988 per tonne compared with local refiners.

CPO is the main feedstock for the production of refined palm products.

While local refiners acknowledged the Indonesian government's rationale to cut the CPO export duty in the interest of its palm oil downstream sector, Jaaffar pointed out that the local refiners were feeling the brunt of the impact from the lower export duty.

"Local refiners want to see a win-win situation but Malaysian refiners cannot just wait and see the impact of the change in the Indonesian CPO export duty on our refining industry.

"It will be difficult to sustain the industry when there is no margin to make and policy to rely on," explained Jaaffar.



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