19.05.2020 (Hellenic Shipping News Worldwide) - Market participants are seeking clarity on the implementation date of the higher Indonesian export levy.
Media reports and market sources say Indonesian Finance Minister Sri Mulyani announced that the Indonesian B30 program would continue, and would be subsidized by a $5 increase in the export levy on palm oil products to $55/mt as well as by the government through the state budget starting “this month.” The Indonesian Finance Ministry could not be reached for confirmation.
Market participants were largely confused by the announcement that suggested the export levy would start in May, saying that it was possible that the rise in the export levy would be effective from first of June. “This is not the usual style of the government, to announce a change effective in the same month. Additionally, it would affect vessel operations at ports. If effective immediately, cargoes on vessels that are currently loading will be subject to the tax and this will cause a financing issue too,” a Singapore-based trader said. Charterers who have vessels currently loading or are expecting vessels to arrive within the May laycan reported they were checking with port agents to prevent any delays.
The rise was largely expected by market participants, who said the Indonesian government needed funds to maintain the B30 mandate, which dictates the use of 30% palm-based biofuel.
A Singapore based trader said the Estate Crop Fund which subsidizes the cost of biofuel blending, was critically short of funds.
“The B30 program needs at least $100 million a month to run, according to my estimates, there might be around $500 million left this year, if even that. Thus, additional funds are needed, and the quickest way to do this is to raise the levy,” this source said.
“The B30 program is a strategic aim of the government, and despite the unfavorable Po-Go spread, the Indonesian government is going ahead with it to support the local industry. This is supportive for palm oil demand and lays to rest the bearish sentiment that the B30 mandate will be reduced to B25. I am also expecting a demand revival in July if the number of fresh Covid-19 cases reduces. However, I do not think the market will rise above MR2,200/mt [$504/mt] as supply pressure starts to factor in from June onward. Prices should be supported at the recent low of MR1,944/mt for at least the next three months,” a Singapore based trader said. At 4:30 pm Singapore time, The Po-Go spread, which is the spread between feedstock palm oil and gas oil was at $213.02/mt, well above the spread of minus $150/mt that renders discretionary blending feasible. ICE Brent July was at $33.87/b, up from $32.15/b on Friday.
Others also felt that while the tax is required now to maintain the program, the government would have to reconsider it by August.
“Malaysia has already reduced the export duty to zero for June, and in order to remain competitive, we have to reconsider this levy. At the moment, Indonesian cargoes will still receive support from India, the largest importer of palm oil, due to the unofficial preference for Indonesian origin cargoes. While a Singapore based broker said that there was still a “considerable” amount of Malaysian origin palm oil shipped to India, another trader said that some Indian buyers still preferred Indonesian-origin cargoes as they felt the Indian government could change its stance anytime. “We will then get possible cases of vessels having difficulties clearing customs, so I prefer to play safe and buy from Indonesia,” a buyer said. In January, the Indian government told Indian buyers to avoid Malaysian-origin palm oil due to comments made by then prime minister Mahathir Mohammed about India’s involvement in Kashmir. At the moment, CFR CPO Kandla offers for June differ by $10/mt with Indonesian CPO offered at a premium.
The move to raise the export levy comes after India cut the import tariff on CPO to $546/mt from $605/mt Friday evening.
“I think the lower tariff has helped the uptick on the Bursa Malaysia Derivatives Exchange.
Overall imports though will still remain a function of how soon India can recover from the lockdown. With a potentially speedy recovery and attractive spread to soft oils, India could import around 700,000 mt [of CPO] a month for July, August and September” director at Singapore-based Comglobal, Pranav Bajoria, said.
This is in comparison to Indian imports of 355,510 mt of CPO and CPKO in April, down 24% from 468,971 mt in April 2019 according to data from the Solvent Extractor’s Association of India.
At 1000 GMT, the new benchmark August contract on the BMD was up MR61 from Friday at MR2,150/mt. Offers for CPO FOB Indonesia for June were up from Friday by around $17.50 at $515/mt, with CPO CFR Kandla offers for Indonesian origin CPO up $7.50 at $552.50/mt. S&P Global Platts assessed CPO CFR west coast India $9 higher from Friday at $547.50/mt for July, with CPO FOB Indonesia was assessed $14 higher at $510/mt for July.