Indonesia's decision to raise the export tax on palm oil by more than fourfold may temporarily slow overseas sales, but it is unlikely to hurt the country's overall export target for the year, industry officials said on Monday.
The Indonesian government raised the export tax for crude palm oil and its by-products on Friday in a bid to stabilise domestic cooking oil prices, which have jumped nearly 30 percent since this year on surging global crude palm oil prices. Despite the move, cooking oil prices in the local market rose to 8,000 rupiah ($0.885) a kg on Monday, from 7,900 rupiah on Friday.
Traders in Jakarta said cooking oil prices were tracking gains in Malaysian futures, which were up nearly 3 percent on Monday. "The export tax is applied to curb exports.
So logically, export volumes would come down temporarily," Rosediana Suharto, executive director of the newly established Indonesian Palm Oil Board, told Reuters. The board groups government officials, palm oil producers and palm oil experts.
But officials said the export tax was unlikely to hurt the country's overall palm oil exports which are expected to rise around 9 percent to 13.2 million tonnes, from last year's 12.1 million tonnes. Indonesian plantation shares were mixed on the export tax news. Indofood Success Maker fell 2.44 percent to 2,000 rupiah, while PT London Sumatra TDK lost 1.5 percent.
However, PT Bakery Sumatra Plantation TDK jumped nearly 2 percent on Monday. Some analysts doubted that the move by the government could help lower domestic cooking oil prices. The move by the government was ostensibly to help reduce the burden on the poor.
"Conversations with industry players revealed that the government has little faith in its ability to curb cooking oil prices, given the currently robust CPO price," Teddy Oetomo, a research analyst at Credit Susses said in a report.
"Therefore, we perceive the increase in CPO export tax rate as a political statement by the government in order not to be perceived to have taken no action on higher cooking oil prices." Bonny Buddy Session, an analyst at CIMB, said in a research note that the likelihood of cooking oil prices dipping below 7,000 per litre was in question.
"CPO prices have gained by 20 percent year to date, large enough to compensate for the export tax, making the export market still appealing, at least for now," Session said.
Indonesia is set to take over from Malaysia as the world's top producer and exporter of crude palm oil this year with output seen rising more than nine percent to 17.4 million tonnes, from last year's 15.9 million tonnes.
Jakarta has raised the export tax on crude palm oil to 6.5 percent from 1.5 percent while the tariff on crude olein was increased to 6.5 percent from 0.3 percent. "The market will react to see if there is an increase in prices. Exporters and importers will make an adjustment on their purchases," Deform Bangui, executive chairman of Indonesia Palm Oil Producers Association, told.
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