Malaysia lowers export tax on Crude Palm Oil as prices tumble

The Malaysian government has lowered the tax on crude palm oil exports in April to 5% from 6% in March.

This move came after the reference price for Malaysian palm oil in April was calculated at MR 2,631.07/mt, down from MR 2,982.63/mt for March. The export tax of 5% applies to a CPO price range of MR 2,551-2,700/mt, while 6% is applicable on a price range of MR 2,851-3,000/mt.

Though in line with expectations, market participants welcomed the news following the decline of palm oil prices despite a rosy outlook at the start of the year.

"I had expected CPO prices to average MR 3,000/mt for at least the first quarter," said a Malaysia-based producer, basing his estimate on biodiesel demand as well as seasonal buying for Ramadhan.

However, palm oil demand was dealt a blow when the largest buyer, India, reportedly advised buyers to avoid Malaysian palm oil and restricted refined palm oil and palm olein imports.

After a high of MR 3,136/mt on January 10, prices started to decline as the coronavirus began to dominate the news agenda. On January 28, the benchmark third-month contract on the Bursa Malaysia Derivatives retreated 10% for the first time since 2008, according to some market participants, triggering a circuit breaker that halted trading temporarily. It closed that day at MR 2,575/mt, the lowest since November. As reports of the virus in other countries emerged, global equities and crude oil prices were also hit. Others said fundamentals were no longer driving the market, but external macro factors like global equities and crude oil.

Market participants continued to express concern about the feasibility of the B30 program in Indonesia as the current PO-GO spread remains in positive territory. At 4:30 pm Singapore time, ICE Brent May stood at $31.57/b, down from $34.57/b on Friday, and the PO-GO spread is currently at $218.89/mt, well above levels suitable for discretionary blending.

"Palm oil prices had a major leg-up in 2019 due to the higher mandates in Malaysia and Indonesia," said a producer. "With $30/b crude, it will be difficult to sustainably finance the program. Additionally, I expect to see higher production in Malaysia from March onwards."