PUTRAJAYA, Feb 28 — The change in palm oil export tax in the world’s largest supplier, Indonesia, may hurt plans for 25 new refineries in Malaysia where processors are already suffering from weak margins, a Malaysian government minister told Reuters today.
Indonesia last year cut export taxes on refined grades that helped its domestic processors restart their factories and offer discounts to overseas buyers.
That turned margins negative for refiners in Malaysia, the No.2 palm oil producer, and the government is looking at ways to keep investments flowing into its $20 billion (RM60 billion) sector, Commodities Minister Bernard Dompok said.
“There is that certainty of losing investors. Of course, we are very concerned about these planned investments,” Dompok said in an interview ahead of the Bursa Malaysia Palm Oil Conference next week.
He said the government was looking to give the refineries “assistance in some form”.
Some of the proposals on the table included helping existing and new refiners with grants to promote the production of higher value palm oil products used in infant formula, ice cream and vitamin E supplements, Dompok said at his office in Malaysia’s administrative capital of Putrajaya.
Malaysia has 51 refineries with a combined yearly capacity of 22.9 million tonnes. It plans new capacity of 9.6 million tonnes.
The 25 new refineries are in various planning and construction phases in Malaysia’s Borneo island states of Sabah and Sarawak, Dompok said.
One key investor has already shifted some of its focus to Indonesia.
Singaporean refiner Mewah in January delayed the completion of its over half a million tonne refinery in Malaysia’s Sabah state to invest in a processing plant on the Indonesian island of Java with a capacity of 630,000 tonnes annually.
There are no official figures for Indonesian palm oil refining capacity but traders and analysts say it can range from 15 million to 25 million tonnes per annum.
Indonesia’s capacity is set to grow as investors bank on stronger palm oil production growth compared to Malaysia and the government use of a higher export tax for crude palm oil compared to the refined grade to retain more supply for refiners.
Singapore’s Golden Agri-Resources said yesterday it plans to nearly double its refining capacity in Indonesia to 2.6 million tonnes.
IOI Corp, Malaysia’s largest refiner, is also looking to build a processor in Indonesia once it gets ample feedstock.
“Malaysian refiners are suffering because the tax has inhibited their imports of Indonesian crude palm oil,” Dompok said.
“I can understand why the Indonesian government did this as they wanted to help their refiners. We can understand the need for industrialisation,” he added.
Crude palm oil export tax
Indonesia’s export tax changes have put a spotlight on Malaysia’s own tax free quota on crude palm oil exports, which refiners say is further squeezing supply in the country where production growth has slowed due to limited acreage expansion.
Malaysia usually charges a high duty on crude palm oil shipments to protect its domestic refining industry. It does not impose any export taxes on processed palm oil.
This year Malaysia issued 3 million tonnes of crude palm oil, which is 16 per cent of total projected output of 19.3 million tonnes.
“The tax free export quota for crude palm oil helped our Malaysian firms expand overseas to places like Amsterdam and China. We have continued with the quote but we have not fully examined its impact and we will do so,” Dompok said.
“Production in Malaysia is rising. There is a build up in crude palm oil stocks to about 1.8 million to 2.2 million tonnes in the past few months. There is some breathing space for now but not for long and we are aware of that.” — Reuters