MALAYSIA’S PALM TAX POLICY US$3B IPO

DORAB ... Malaysian response to Indonesia waiting on IPO of Felda Global Ventures Holdings.

SINGAPORE: Malaysia’s policy response to Jakarta’s lower export tax for refined palm oil, which has shifted orders to Indonesia, may come after the government lists its plantation assets in a US$3 billion IPO, said top industry analyst Dorab Mistry.

Malaysia has struggled to formulate a response to the new tax regime since it came into force in September, allowing Indonesian refiners to export at a sizable discount and grab market share.

While Malaysia has zero tax duty on refined palm oil and imposes a very high duty on crude, processors are under margins pressure from a policy where three million tonnes of crude get exported on a duty-free basis that keeps feedstock prices high.

The tax-free quota is assigned to firms including the commercial entity of the Federal Land Development Authority (FELDA) that ship out the crude to their overseas refineries and is en route to a listing — Asia’s largest — by end-June.

Removing the three million tonnes quota may hurt Felda Global Ventures Holdings’ profits, angering the small farmers who will have a share in the firm and represent a key vote bank for the government in elections widely expected this year.

“My expectation is that the Malaysian response will not come until the FELDA IPO is safely executed and the market gives FELDA shares a warm welcome,” Mistry, who trades for Indian conglomerate Godrej International, told Reuters.

“That means no response and larger crude palm oil quotas until August 2012,” he added.

FGVH is set for a US$3 billion (RM9.1 billion) IPO after it released a prospectus last week that showed the firm was the world’s No.3 palm estate operator while its 49-per-cent-owned unit Felda Holdings is the largest processor of crude palm.

Mistry said until the IPO debuted, the Malaysian government would have to boost the duty-free export quota for crude palm oil to keep exports well above the minimum one million tonnes mark.

“Malaysian refiners are facing terrible times. Several of them have closed down temporarily. Malaysia has no alternative but to concentrate on crude palm oil exports and to enhance the duty-free export quota for crude palm oil,” Mistry added.

Making such a move could further squeeze margins for refineries in Malaysia, traders say, as the current quota of three million tonnes account for 15 per cent of the Southeast Asian country’s production this year.

But Mistry said the market was focusing on “relatively minor issues” like the differential between crude palm oil and its derivative refined, bleached and deodorised (RBD) palm olein — a key gauge of profitability for processors.

RBD palm olein is at US$14 premium over benchmark Malaysian crude palm oil futures from US$90 premium in September when the Indonesian export tax changes were first announced.

“The market forgets that the big story of 2012 is stagnant-to-declining (palm oil) production,” he said. “And for future years, the growth in crude palm oil production in Indonesia will be much slower.” (Reuters)