Arab Today, arab today malaysian palmoil refiners urge reform
Last Updated : GMT 16:24:37
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Malaysian Palm-oil refiners urge reform

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Arab Today, arab today Malaysian Palm-oil refiners urge reform

Kuala Lumpur - Arabstoday

Malaysia, the world’s second-largest palm-oil producer, needs to reform the industry’s tax structure to counter new rates in Indonesia that improved the competitiveness of refiners there, according to a trade group. Without changes to create a so-called level playing field, there will be “a slow death of the refining industry when the independent refiners move away,” said Mohammad Jaaffar Ahmad, chief executive of the Palm Oil Refiners Association of Malaysia. The tax changes by Indonesia last year made local crude palm oil, or CPO, cheaper than in Malaysia, cutting costs for refiners, according to Jaaffar. Southeast Asia’s largest economy is seeking to boost the value of commodity shipments, including metals, to raise investment flows and spur economic growth. Bernard Dompok, Malaysia’s plantation industries and commodities minister, said that changes are being drawn up. “The problem is that the refiners are feeling the pinch of the tax changes in Indonesia and they want a level playing field,” Dompok told Bloomberg on May 11. “We will be proposing to the government a solution to the problem for the producers and the refiners,” he said, without giving details. Palm oil, the world’s most-consumed cooking oil, is used in everything from candy bars to biofuel. Malaysia and largest producer Indonesia account for about 89 percent of global shipments. Crude palm oil, which has more than doubled in the past decade, traded at 3,130 ringgit ($1,007) a metric ton on the Malaysia Derivatives Exchange at the midday break. ‘Very Bleak’ “If nothing is done then the industry will face very bleak prospects over time with potential closures,” Ivy Ng, an analyst at CIMB Group Holdings Bhd., said in an e-mail, referring to Malaysian refiners. The country may face difficulty attracting investment given the less appealing tax structure compared with Indonesia, Ng wrote in a report dated April 6. The association wants the Malaysian government to end the practice of allowing the annual tax-free export as much as 3.5 million tons of crude palm oil, boosting raw supplies for local refiners, Jaaffar said in an interview. At the same time, tax rates on Malaysian crude shipments should be cut to less than Indonesia’s rate from about 21 percent to 22 percent, he said. “This will give some breathing space to our refiners,” said Jaaffar, who spoke in Selangor state on May 15 and last month. “We’re not depriving our CPO exporters to export but they must pay tax. But it will be lower than our current duty and the duty that Indonesia pays.” Sime Darby The association represents about 80 percent of the nation’s refining capacity and members include Sime Darby Bhd. (SIME), the world’s biggest listed palm-oil producer. Increased consumption of crude palm oil within Malaysia may cut stockpiles and help to increase prices in the long term after an initial drop, he said. Indonesia, the largest tin exporter and a producer of copper and bauxite, wants to raise the value of commodity shipments by promoting processing. The country banned shipments of 14 raw minerals including copper and silver from May 6, while introducing a 20 percent tax on exports from companies exempted from the curb on condition they build processing facilities. Last October, Indonesia reduced the maximum export tax on refined, bleached and deodorized, or RBD, palm oil to 10 percent from 23 percent, according to a Finance Ministry Decree. The rate for RBD palm olein was cut to 13 percent from 25 percent, while the highest tax for crude palm oil was set at 22.5 percent. ‘Best Policy’ “This is without a doubt the best policy from President Susilo Bambang Yudhoyono for the palm-oil industry and Indonesia,” said Sahat Sinaga, second deputy chairman at the Indonesian Palm Oil Board. Refining capacity may surge to 25 million tons next year from 18.5 million tons as new plants are built and existing operations are expanded, Sinaga said. Wilmar International Ltd. (WIL), the world’s biggest palm-oil processor, plans to spend more than $100 million to boost refining capacity in Indonesia by 50 percent, Chief Operating Officer Martua Sitorus said on May 10. The company won’t cut capacity in Malaysia, he said. There will be “significant additions” to refining capacity in Indonesia over the next 18 months after the tax changes, according to Adrian Foulger, head of food & beverage research at Standard Chartered Plc. Mewah International Inc. (MII), Malaysia’s second-biggest refiner, reported first-quarter net income slumped 51 percent to $8.3 million as margins fell, according to a May 11 statement. The company said in January it planned to build a refinery in East Java to boost capacity in Indonesia, while delaying completion of a plant in Sabah in eastern Malaysia. As of last month, Malaysia had 50 refineries with total capacity of about 22.7 million tons, according to the nation’s palm-oil board. Processed exports last year accounted for 14.5 million tons out of 18 million tons of total palm-oil shipments from the country, data from the board show. Malaysia is expected to amend its tax policies to respond to the challenge from Indonesia, said Sinaga at the Indonesian Palm Oil Board. About 70 percent of the extra refining capacity that’s planned in Indonesia will come from new investments, with the balance from the expansion of existing plants, he said.

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