LOCAL palm oil refiners have been waiting patiently for the past eight months
for a rescue plan to counter the negative impact of Indonesia's palm oil export
Sadly, the relevant authorities are still keeping mum on the mechanisms or
measures to be formulated. Local refiners claim that they are being left in the
dark as to how the Government will address this issue amicably.
At the same time, many are still hoping for a speedy solution either through
a revision of the existing palm oil export duty policy or incentives to level
the playing field for the local and Indonesian refiners.
The local crude palm oil (CPO) export duty has remained unchanged at 23%
since the 1970s but Indonesia's CPO refined products export duties have have
drastically slashed by more than half since last October, and it currently range
from 3% to 20%.
Under the new duty structure, Indonesian refiners are said to be able to reap
5% to 8% higher profit margins compared with the traditional operating profit
margins of Malaysian at 3% to 6%.
At current refining capacity and forecast CPO production of 19.36 million
tonnes minus about three million tonnes for the CPO duty-free export quota this
year, local palm oil refiners would only have an average refining capacity
utilisation rate of 68%.
However, those with a capacity utilisation rate of less than 60%, will find
it most difficult to sustain their operations under Indonesia's new export duty
Last year, the average refining margin was only 1.4%, or RM45.14 to the cost
of CPO of RM3,286 on per tonne basis. But starting early this year, the margins
are in negative territory at minus RM18.81 in January and minus RM18.66 per
tonne of CPO in February.
CIMB Investment Bank, in its latest report, expects players with refining
facilities in Malaysia like Wilmar, Mewah Group, IOI Corp Bhd, KL Kepong Bhd and
Sime Darby Bhd to see weaker refining margins in the second half of this year
unless a policy to help the local downstream industry is introduced.
To plough back some of the cost advantage against their peers in Indonesia,
CIMB said these refiners may also be under pressure to improve their purchasing
of feedstocks by taking some trading positions.
In the meantime, Malaysia is also set to face difficulties in attracting new
investments in its refining sector vis-a-vis Indonesia.
Some refiners have cited their intention to either shift or invest more in
Indonesia's refining sector to take advantage of the lower-priced CPO
Mewah International Inc, Malaysia's biggest palm oil refiner after Wilmar is
said to be pushing for the setting up of a US$145mil refinery in Indonesia,
while delaying its earlier plan for a palm oil refinery in Sabah.
KL Kepong also announced plans to build three refineries in Indonesia to
capture more favourable selling prices for its palm oil produced from