BANGI: Malaysia is likely to export more crude palm oil (CPO) this year as the recent review of Indonesian palm oil taxes has caused refiners here to lose money.
Since October 2011, the Indonesian government has widened the export tax gap between CPO and refined products drastically to boost refining capacity and downstream activities.
As a result, CPO and crude palm kernel oil became very cheap for downstream producers there.
Malaysian refiners have started to concede global palm oil market share to Indonesia. This is pushing more palm oil stocks to Malaysia.
This year, the Malaysian Palm Oil Board forecast palm oil output to top 19.3 million tonnes, two per cent more than last year's 18.9 million tonnes.
The industry regulator estimated that there will be more CPO to process as more trees come into maturity and bear more fruits.
But refiners in Malaysia lose money when they run their factories in this kind of uncompetitive environment.
The backflow effect of refiners slowing their uptake of CPO from millers is now slowly, but surely, causing a build-up in stocks.
LMC International Ltd chairman Dr James Fry said: "Malaysian exporters have adapted to the Indonesia moves in the short run by raising CPO exports."
This is possible because so far, the Plantation Industries and Commodities Ministry has allowed a duty-free quota of three million tonnes of CPO for the year, Fry said when presenting his paper - "Indonesian Export Taxes since September 2011: Malaysia's Policy Options" - here yesterday.
On paper, Malaysia's CPO export tax is highly prohibitive. At 30 per cent, no one wants to ship out CPO unless they are granted duty-free quota by the government.
Last month, London-based Godrej International director Dorab Mistry expressed similar views.
Dorab reportedly said the drastic widening of the export tax gap between CPO and refined products to boost refining capacity and downstream activities in Indonesia has resulted in the republic grabbing market share from Malaysia.
"Malaysia's palm oil stocks are not declining. What could happen in the months ahead is Malaysia can either become a CPO exporter or the government could copy the Indonesian export tax regime," Dorab said.
When contacted, a senior official with the Plantation Industries and Commodities Ministry replied that there has yet to be any applications for additional export quota for duty-free CPO.
Asked if the government would raise the quota if planters request to ship out more duty-free CPO to prevent overflowing in storage tanks at the mills, the official said: "We will do what is best for all stakeholders throughout the value chain."