New Delhi — Buying interest for palm oil has seen a reduction in Asia markets during the week ending May 21 as traders go into wait-and-watch mode ahead of potential cuts to the $255/mt export levy that Indonesia charges to subsidize its national bio-diesel program, multiple sources told S&P Global Platts.
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According to trade sources, a $100/mt cut in the export levy has been proposed and may be announced in the coming weeks. However, there is no official announcement yet.
"Prices have fallen steeply recently and I don't think anybody is rushing to buy much until July at least," Marcello Cultrera, institutional sales manager for Singapore-based Phillip Futures said.
"Until there is more clarity, some will stay on the sidelines."
The same opinion was voiced by two other analysts and an edible oils trader who spoke to Platts on the matter.
Palm oil orders are usually booked a month or two in advance. Therefore the current dip in buying interest could be reflected in July and August shipments.
Indonesia is the world's largest producer of palm oil and accounts for about half of the world's supply for the versatile ingredient used in cooking, confectionary, cosmetics and as a biofuel.
The Indonesian Palm Oil Board (GAPKI) did not immediately respond to a request for comment.
Lower bookings from Indian buyers
In terms of export share to India -- the largest buyer of CPO -- Indonesia's average per-day bookings have slipped in the first half of May, Aditya Jeripotla, head of research at commodity research firm TransGraph said.
While average per-day booking from Malaysia over May 1-15 was around 16% less than the average per-day bookings during April 16-30, buying from Indonesia has fallen more drastically, he said.
CPO sales to India generally reflect overall trade sentiment in the industry as the country imports almost all of its annual requirement of 7 million-9 million mt of palm oil in crude form.
The second largest palm oil buyer, China, mostly imports processed palm oil and palm stearin -- an industrial product used for making shortening fats, margarine and in vegetable oil blends.
Indian palm oil buyers are also facing uncertain times as pandemic-led shutdowns have slowed business in most parts of the country. Along with high prices of CPO, this could further drag demand sentiment down for the next few months.
Indonesia-Malaysia tax differences
Since December, Indonesia has applied progressive export levies on palm oil exports. Under this structure, the levy increases for every $25/mt increase in the reference CPO price and is capped at $255/mt.
The export levy currently being charged is $255/mt as CPO prices are trading at record highs. This export levy is separate from the country's export tax which is also set to increase with the CPO price and is currently at $93.
The new system thus represents a significant increase from the flat levy of $55/mt, which was in place until November 2020.
Significantly, it is also at a premium to the world's number two producer of palm oil, Malaysia, which also has a progressive tax regime but no export levy.
Malaysia's export tax structure starts at 3% for CPO at MR2,250-2,400/mt, while the maximum tax rate is set at 8% when prices exceed MR3,450/mt. Currently Malaysia's reference rate for June is set at MR4,627.40/mt ($1,116.10) which translates to an export tax of MR370/mt ($89.20/mt)
In the past two weeks, major Indonesian palm oil companies have reported bigger hits to their first-quarter profitability due to the export levy.