Malaysia reviewing palm oil export duties

Malaysia, the world’s second-largest palm oil producer, is reviewing the duty structure for its exports of the edible oil, according to its minister in charge of agriculture produced for export, to boost demand and reduce burgeoning stockpiles.

“We are currently reviewing our present export duty structure to ensure a level playing field in the market,” said Primary Industries Minister Teresa Kok in an emailed response today to questions submitted earlier by Reuters.

Palm oil producers in Southeast Asia have been grappling with slow exports as demand has waned on weaker currencies and higher import taxes. The demand slump has caused inventories in Malaysia to build to their highest in nearly 18 years while stockpiles in Indonesia, the world’s biggest palm producer, have also climbed.

Palm oil prices fell to their lowest in three years earlier this month amid the demand slump, and were down 0.9% at RM2,108 a tonne today morning.

Despite Malaysia cutting its export tax on crude palm oil to zero since September, industry participants say Indonesian palm is still more competitive as the country’s producers have sharply discounted their prices, causing Malaysia to actually increase imports from Indonesia. Production costs in Indonesia are also typically less than in Malaysia.

Earlier this month, Indonesia also eased its rules on palm oil levies and derivative products to boost its exports.

To counter the Indonesian import, Kok said the government is “currently encouraging our companies to use domestically produced palm oil to reduce the stockpile.”

“By reducing imports, we could see a significant reduction in palm oil stocks in Malaysia and this would boost prices.”

Prices next year are expected to be supported by demand from traditional markets as they replenish stocks, said Kok, adding that the implementation of a higher biodiesel mandate in 2019 will also help palm prices.

Malaysia will raise the minimum bio-content in biodiesel to 10% for the transport sector and 7% for the industrial sector.

Kok also said she expected production “in the region of 20 million tonnes” in 2019. The government last month forecast output of 20.5 million tonnes for 2019 and 19.8 million tonnes for this year.