Indonesia's palm price advantage set to diminish demand for Malaysian supply: traders

Indonesia's palm exporters are reaping the benefits of low export taxes and a levy waiver, and the widening price gap between Indonesian and Malaysian palm will dwindle demand for the latter, trade sources said Oct. 17.

Indonesia's trade ministry over the weekend lowered the crude palm oil reference price for Oct. 16-31 to $713.89/mt from $792.19/mt in the first half of the month. The latest reference price would place its palm export tax much lower at $3/mt, down from $33/mt previously.

In addition, Indonesia has waived its levy for palm from July 15 until Oct. 31 to ramp up exports, while still retaining export taxes and revising bi-monthly. Market expectations are now rife that Indonesia's levy waiver might be extended until December.

In comparison, Malaysia's CPO exports are currently subject to 8% tax at an increased CPO reference price as Malaysia's payable duty rises, while Indonesia's tax rate falls, traders said.

"Indonesian palm is available at steep discounts, some as much as $40-$50/mt below Malaysia palm and the offers have been quite aggressive into India," a Singapore-based trader said.

India's purchases of palm from Indonesia have been brisk in recent months, where demand has been picking up ahead of this month's Diwali festival. India's vegetable oil imports in August rose 15.7% month on month to 1.401 million mt, mainly from Indonesia, data from the Solvent Extractors' Association of India showed Sept. 13.

The momentum in shipments has helped lower Indonesia's palm oil stocks, which at end August had fallen a steep 31.7% on the previous month to 4.036 million mt, according to the Indonesian Palm Oil Association known as Gapki on Oct. 11.

"Now that the peak harvest season is over, I expect production [from Indonesia] to slow and take Indonesian stocks back to normal levels," a second Singapore-based trader said.

Indonesian producers struggled with huge inventories during Jakarta's three-week palm export ban on April 28, pushing stocks to an all-time high of 7.23 million mt by May, Gapki said. This prompted Indonesia to waive the levy and cut export taxes to accelerate exports.

Platts assessed the FOB Indonesia CPO price at $874/mt for November loading Oct. 14, down 55% from the record high reached in March, data from S&P Global Commodity Insights showed.

Indonesia and Malaysia account for 85% of global palm oil supply.