DMG & Partners Plantation Sector: NEUTRAL

Indonesia may lower minimum reference price for palm oil export tax

Government may lower minimum reference price for export tax. According to news reports yesterday, Bayu Krisnamurthi, deputy to the coordinating minister for economic affairs, said that Indonesia may lower the trigger price for imposing the export tax on CPO and its derivatives from US$700/tonne to between US$600-US$650/tonne. Another alternative the government is exploring is to impose an export tax rate of between 1.5%-2% on palm oil, even if palm oil prices remain below the current trigger price of US$700/ tonne.

Reason – to ensure adequate supplies of palm oil for locals. YTD, palm oil prices have risen approximately 32% to RM2,272/tonne (US$639) on 3 Apr (per MPOB). In addition, the IDR has weakened against the US$, making exporting palm oil more attractive. The government is concerned that producers may export most of the palm oil produced, leaving the domestic market vulnerable to a supply shortage.

Impact - mildly negative on producers if export tax is imposed. Paying export taxes would be a drag, albeit a minor drag, on the producers’ cashflow and earnings.

Maintain NEUTRAL on sector. With weaker global demand expected, we are maintaining our NEUTRAL call on the sector. Indofood Agri Resources (IFAR) remains a NEUTRAL with target price S$0.51 and First Resources (FR) is a SELL with target price S$0.21.