KUALA LUMPUR (NewsRise) - Malaysia, the world's second-largest palm oil producer after Indonesia, raised the export tax rate on palm oil shipments for March amid rising prices.
Exports of crude palm oil will be taxed at 8.0% a ton in March compared with February's 7.5% levy, the government said in a statement.
The decision drove most of the plantation stocks lower, with the Bursa Malaysia Plantation index ending 0.6% down.
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.
"Although 8% is higher than our full-year estimate, it was a result of increasing CPO prices, so it is unlikely to have any material impact on earnings," says RHB Research Institute's analyst Hoe Lee Leng. "Planters are mostly selling palm oil to local downstream players, or direct them to their own refinery units, which exempt them from palm oil duty."
The benchmark crude palm oil futures contract on Bursa Malaysia Derivatives in Kuala Lumpur for May delivery fell to a two-month low of 2,861.00 ringgit amid concerns that higher prices due to the additional tax could hurt overseas demand for the commodity.
"Market is still calculating the costs," said Ryan Chua, a senior manager of dealing at Oriental Pacific Futures, "but prices will probably come down a little more in the months ahead when demand falls because of the higher cost."
After a strong showing last year, palm oil prices have remained resilient in recent weeks as decline in output raised supply concerns at a time of seasonally low production, while monsoon rains disrupted harvesting activities in key plantation areas in Malaysia.
Output of crude palm oil declined 13.4% month-on-month in January to 1.28 million tons, according to latest data from the Malaysian Palm Oil Board. Overall inventory, including processed palm oil, fell 7.6% in January to 1.54 million tons from December.
Spot palm oil prices meanwhile have climbed 2.6% so far this year to extend the 46% gain through 2016. Lingering effects of poor weather conditions in 2015 have been dragging down production of the oil palm that is used in everything from snack to soaps.
Production could be "flat or marginally higher" on a month-on-month basis in February as output typically picks up after Chinese Lunar New Year holidays, UOB Kay Hian's analyst Ooi Mong Huey wrote in a recent investor note. Inventory is expected to remain tight with prices trading between 2,800 ringgit and 3,300 ringgit a ton in the first half of 2017 before a stronger recovery in the second half, she said.
While, Sime Darby shares gained 0.1% to close at 9.15 ringgit, IOI Corp shares closed down 1.1% at 4.63 ringgit, Genting Plantations shares shed 2.3% to 3.37 ringgit, and Kuala Lumpur Kepong lost 0.2% at 24.88 ringgit. The benchmark FTSE Bursa Malaysia KLCI index ended barely changed.