GCIPalm Oil producers weigh up impact of Indonesian tariff reductions
M.P. Evans Group () and R.E.A. Holdings () have noted the recent announcement by the Indonesian government regarding two sets of revisions to its palm-oil export duty and levy.
Earlier this month, Muhammad Lutfi, Trade Minister of Indonesia which is the world’s biggest palm oil producer, said the government would bring down its combined maximum crude palm oil export and levy rate to $488 per tonne from $575 per tonne to encourage shipments.
Indonesia had banned the export of crude palm oil and some of its derivatives from 28 April 2022 for three weeks in efforts to control soaring domestic prices of cooking oil, made from palm oil.
Indonesia has now slashed the maximum crude palm oil export levy by nearly half in a bid to speed up shipments and “flush out” its overflowing stockpiles following the lifting of the ban.
Exporters will now pay a maximum levy of $200 a ton for crude palm oil, down from $375 currently, according to a decree published on the finance ministry’s website last Monday. Today, M.P.Evans Group (MPE) and R.E.A. Holdings acknowledged two further revisions.
The first set of revisions effective from 14 June 2022 to 31 July 2022 results in a decrease in the combined duty and levy payable by the Group of up to $87 per tonne, dependent on the reference price of crude palm oil used, which is closely linked to the cif Rotterdam price.
However, for the period up to 31 July 2022, the Indonesian government is also introducing a US$200 per tonne export tariff, which is to be charged in addition to the export duty and levy.
From 1 August 2022, at which point the export tariff will no longer apply, a second set of revisions will be introduced to decrease up to $47 per tonne in the combined export duty and levy, payable by the Group compared to the duty and levy in place prior to 14 June 2022.
M.P. Evans achieved an average mill-gate price for its sales of crude palm oil of US$1,079 per tonne in the first five months of 2022, compared with US$715 for the same period in 2021.
Following the government's revisions to the export duty and levy, coupled with a softening in the cif Rotterdam price, recent mill-gate prices achieved have been around $750 per tonne.
“Most of the uncertainties related to Indonesia’s exports have now been cleared. Market participants are now waiting for June production and export numbers, as well as watching palm oil’s narrowing spread to gasoil, for signals about the market’s direction,” Anilkumar Bagani, Head of Research at Mumbai-based Sunvin Group, told Bloomberg last week.
“A further weakness in the ringgit and surging crude oil prices are supporting the market,” stated Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental. While palm oil has also gained on short-covering and bargain-hunting, he added that gains are expected to be capped as supplies from Indonesia continue to rise.
Shares in M.P. Evans and R.E.A Holdings are down by 5.30% and 2.14%, respectively. Both say they continue to monitor the situation closely as the new arrangements come into force.
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