Malaysia raises January's export tax on crude palm oil to 7%

21.12.2016

Malaysia, the world's second-largest palm oil producer after Indonesia, will raise the export tax charge on crude palm oil in January amid rising prices, despite a weak global demand.

Exports of crude palm oil will be taxed at 7.0% a ton in January compared with December's 6.0% levy, according to a government statement. Malaysia has a multi-tier tax rate of between 4.5% and 8.5% for exports of crude palm oil that kicks in when prices exceed 2,250 ringgit ($502.3) a ton.

"The higher tax may reduce [export] volume by a little," said Kenanga Investment Bank's analyst Voon Yee Ping. "But even with weak demand, planters are still enjoying good prices."

Palm oil prices have been on the rise in recent weeks as supply worries outweigh concerns of feeble demand. A weakening Malaysian ringgit against the U.S. dollar has also helped prop prices up of the edible oil.

In November, output declined 6.1% from the previous month to 1.57 million tons, according to latest data from the Malaysian Palm Oil Board, outpacing a 4.2% month-on-month decline in exports of 1.37 million tons.

Malaysia's production of the oil that is used in everything from snack to soaps has been weaker-than-expected this year due to lingering effects of last year's poor weather conditions. Furthermore, year-end monsoon rains could also disrupt harvesting in key plantation areas in Malaysia.

"Traders with higher risk tolerance could continue to hold previous short position with stop-loss" at 3,127 ringgit, said Oriental Pacific Futures, a futures brokerage firm, "and move trailing profit stop" to 3,048 ringgit if the palm oil futures market reaches 3030 ringgit level.

Spot prices of palm oil have surged nearly 46% so far this year as key producers grapple with the so-called El Nino, a weather condition that results in scorching heat and less rain. The drier-than-usual weather have shriveled trees, hurting yields of the oil.

The benchmark Crude Palm Oil Futures Contract on Bursa Malaysia Derivatives in Kuala Lumpur for March delivery rose 1.0% to 3,155 ringgit on Wednesday.


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