Palm Oil News Update: Indonesia's CPO Export Tax Remains at 0%
Indonesia's export tax on crude palm oil (CPO) shipments will remain at zero percent in October 2015 as the government's reference CPO price fell 13 percent (month-on-month) to USD $529.51 per metric ton for October. When this reference CPO price is below the USD $750 per ton threshold, then the government scraps the export tax in an attempt to make shipments more attractive. However, exporters are still subject to the recently introduced palm oil exports levy. When the export tax is cut to zero percent, exporters are required to pay a USD $50 per ton levy for CPO and USD $30 for processed palm oil products shipments (part of these funds are channeled to Indonesia's biodiesel subsidy program).
However, palm oil futures in Kuala Lumpur touched a high of 2,460 ringgit (approx. USD $555) per metric ton earlier this week as the ringgit hit a fresh 17-year low against the US dollar (making palm oil more attractive for foreign buyers). Dorab Mistry, Director at Godrej Industries Ltd, believes that the palm oil price can extend this rise. He adds, however, that a prolonged peak of the CPO price is not likely unless mineral oil prices rise significantly. Cheap crude oil makes edible oils (such as palm oil) a less attractive option for palm oil-based biofuel.
Mistry also said that the palm oil price can be supported into 2016 if Indonesia can absorb a significant amount of its palm oil production through the biodiesel program. However, Southeast Asia's largest economy has a weak track-record regarding the implementation of new policies.
Furthermore, CPO prices are supported by concern that the El Nino weather phenomenon (which brings less rainfall to Southeast Asia) will curb output of palm oil in Indonesia and Malaysia, the world's two largest growers and exporters, by approximately 30 percent. This concern managed to pull palm oil out of the bear market it had entered in August.
On the other hand, the El Nino phenomenon brings plenty of rain to America where production of soy beans (soy oil is the main rival of palm oil on the global market) are expected to be strong.
Meanwhile, India decided to raise import duties on cooking oils this month. The world's largest palm oil importer increased the import duty on crude palm oil (and soybean oil) from 7.5 percent to 12.5 percent. This move will most likely reduce imports.
Indonesian Palm Oil Production and Export:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015¹ | |
| Production (million metric tons) |
19.2 | 19.4 | 21.8 | 23.5 | 26.5 | 27.0 | 31.0 | 31.5 |
| Export (million metric tons) |
15.1 | 17.1 | 17.1 | 17.6 | 18.2 | 21.2 | 20.0 | 19.5 |
| Export (in USD billion) |
15.6 | 10.0 | 16.4 | 20.2 | 21.6 | 19.0 | 21.0 |
¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture