Indonesia is expected to cut its crude palm oil export tax to zero for October, industry sources in the world's top producer of the tropical oil said, after a similar move by Malaysia aimed at boosting overseas sales of the commodity amid weak demand.
Benchmark palm oil prices have dropped almost a quarter this year and hit a 5-1/2 year low of 1,914 ringgit ($601) a tonne earlier this week in an oversupplied market, prompting Malaysia to exempt the commodity from export taxes for both September and October.
Indonesia currently has a palm oil export tax of 9 percent for September. The country sets its monthly rate using both global and local crude palm oil (CPO) prices for the first 20 days of the previous month. If international CPO prices drop below $750 a tonne, the Indonesian export tax will automatically be cut to zero. "The CPO price in September tends to decline," Steaven Halim, a senior official at the Indonesian Palm Oil Association (GAPKI) said on Friday.
"The CPO reference price for October will most likely be below $750 and the government may set the export tax at zero." Indonesia, which is expected to produce 30 million tonnes of palm oil this year and export around 20 million tonnes, introduced an export tax in 1998 to ensure domestic demand is met and to boost downstream industries which generate more cash.
The international crude palm price reference used by the Indonesian government for September was $810 a tonne, said Deputy Trade Minister Bayu Krishnamurti, adding that global prices were not expected to rise in the coming three months. Palm oil stocks in Malaysia, the world's No 2 producer of the edible oil, likely jumped to their loftiest in seven months at the end of August as higher output due to crop-friendly weather outstripped poor export demand, a Reuters survey showed on Thursday.