M'sian palm-oil refiners 'squeezed' by zero duty
Malaysian palm-oil refiners facing a margin squeeze from the recent imposition of the zero crude palm oil (CPO) export tax are bracing for an extension of the zero duty, which is expected to remain until next month.
This is because the threshold price of 2,250 ringgit (Bt21,000) per tonne for CPO to be taxed is not likely to be breached in the coming months, according to industry experts.
Mohammad Jaaffar Ahmad, chief executive officer of the Palm Oil Refiners Association of Malaysia (Poram), said many palm-oil refiners were experiencing negative margins, especially “when the zero CPO export duty was declared in Malaysia and Indonesia”.
Currently, the differential price of refined, bleached and deodorised (RBD) palm olein over CPO is around 70 ringgit per tonne on average.
“Once you’ve factored in the refining and fractionation costs, this margin will disappear and go into negative territory. The margins have been bad for the last three to four months, and will continue to be so in the first quarter of this year if the CPO prices continue to be dampened and demand does not increase quickly,” Jaaffar said.
He pointed out that Poram members were “resilient refiners”, and that although there were no reports of plant closures so far, “many are operating at below optimal capacity to cut losses”.
“While exports will not be halted, the composition of the product mix will change, as refiners will produce and export more products [that] can command better margins, including CPO.”
According to Jaaffar, whenever there is zero CPO export duty in Malaysia, everybody loses, including the government in terms of the collection of the CPO export duty. Based on 2013’s average, Malaysia exported about 300,000 tonnes of CPO every month.
At the minimal threshold price of 2,250 ringgit per tonne for CPO to be taxed, Jaaffar said, “The government can collect about 30 million ringgit.”
To date, the Malaysian palm-oil-refining industry is estimated to be worth 2.9 billion ringgit, with a total of 58 refineries operating in the country, including the big plantation companies such as Wilmar International, Felda Global Ventures Holdings, Sime Darby, IOI Corp and Mewah Group.
“Generally, all refiners, whether integrated or pure, will be affected when there are zero or negative margins. Different refineries employ different strategies to mitigate their losses, but normally, pure refiners are the ones that will be badly hit, as they are fully dependent on the processed palm oil exports,” Jaaffar said.
For refiners, the impact of the zero CPO export duty in Malaysia should not be seen in isolation.
“This must be seen together with the Indonesian duty export structure. If there is zero CPO export duty declared by both countries, it means that there is no tax differential between the two countries.
“Malaysia will have no further advantage to export or sell processed palm oil [RBD palm oil and RBD palm olein], as Indonesia will not impose any duty on its processed palm oils either.” In Malaysia, all processed palm oils have no export duty.
On the other hand, if Malaysia imposed a 4.5-per-cent CPO export duty (because the threshold prices of 2,250–2,400 ringgit have been breached), it would only be good if the Indonesians also imposed a CPO export duty correspondingly (assuming the Indonesian CPO threshold price has also increased in tandem with Malaysia and the international price).
