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Indonesian palm levy delays frustrate traders, undermine biodiesel goals

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Repeated delays to the introduction of a levy on palm oil shipments from Indonesia are frustrating traders, who find it hard to set prices, and have raised doubts over whether the levy will be successful in generating planned biodiesel subsidies.

[JAKARTA] Repeated delays to the introduction of a levy on palm oil shipments from Indonesia are frustrating traders, who find it hard to set prices, and have raised doubts over whether the levy will be successful in generating planned biodiesel subsidies.

The levies were announced in March and President Joko Widodo signed a regulation in May to impose US$50 per tonne on shipments of crude palm oil (CPO) and US$30 for processed palm oil products from the top producing country.

Indonesia already has an export tax on palm. Under the new plans, the levy will only be applied when that tax is cut to zero, which happens when a reference price drops below US$750 a tonne.

Ministers said the levies would take effect in the fourth week of May but they have been postponed several times because of "administrative issues" and delays in starting up the public body that will collect and manage the funds.

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On Monday, Coordinating Minister of Economic Affairs Sofyan Djalil said the implementation would be pushed back to July 1 from the June 15 date given only last week. "The constant delay in the implementation is bearish to the markets. It's harder for investors to make decisions," said a trader with a foreign commodities brokerage in Kuala Lumpur.

Benchmark Malaysian palm prices were trading at 2,301 ringgit (US$612) a tonne on Wednesday. Prices have been caught between 2,261 ringgit and 2,303 ringgit for the week.

Traders and analysts say hiccups in the introduction of the levies as well as vague guidelines have stoked confusion.

"There was never any official announcement on the date. There's nothing black and white," said a palm oil analyst who declined to be named. "If you want to tax people, you have to come up with a guideline. People know that something is coming, but they don't know when it's coming or how much exactly."

The proceeds from the levies are to be partly used to help fund biodiesel subsidies, which were introduced to soak up excess palm oil and cut the oil import bill.

"It looks like Indonesia is not really prepared. And because of this, people are doubting how effective the biodiesel mandate is going to be," the Kuala Lumpur trader said. "That's also indirectly saying that palm stocks will build up."

State energy firm Pertamina has also held back from holding tenders for biodiesel made from palm. "Suppliers need clear regulations first, such as the amount of subsidy for biodiesel," said Muhammad Iskandar, its vice-president for Fuel Retail Marketing.

The Indonesian Palm Oil Association has said delays in establishing guidelines and a new biodiesel fund meant the implementation of the levy could be pushed back to August.

REUTERS

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