Bursa soars on govt plan to cut CPO export tax

KUALA LUMPUR: BURSA Malaysia surged to an all-time high yesterday, fuelled by fund buying of heavyweight Sime Darby Bhd and other plantation stocks after the government announced plans to cut export tax of crude palm oil (CPO) by more than half.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) advanced 11.72 points to a record high of 1,661.47.

The index moved between the 1,649.66 and 1,662.14 levels throughout the day, dealers said, adding that the solid showing was in line with steadier regional markets.

CPO prices had been on the downtrend in the last six months but in the last three weeks, it suddenly plunged. 

Three days ago, palm oil suffered its biggest loss in nearly three years. It tumbled 9 per cent to RM2,255 per tonne – its steepest daily drop since the 2008 financial crisis.

But since news reports of possible lowering of CPO tax surfaced two days ago, palm oil prices had started to climb a little.

Yesterday, the third-month benchmark crude palm oil futures traded RM1 higher to close at RM2,352 per tonne. Volume totalled 16,317 lots, higher than the usual 12,500 as some traders took up positions ahead of positive news from the government.

Over at the equities market, plantation stocks like Sime Darby, Kuala Lumpur Kepong Bhd and United Plantations Bhd were among top 10 gainers yesterday.

When met at the opening of the Malaysian Timber Council Global Woodmart here yesterday, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said he prefers the proposal to take effect as soon as possible but it is for the Cabinet to decide. 

"We want to reduce stockpiles. The lowering of the CPO tax, if approved by the Cabinet, will help boost CPO exports. Hopefully, this will help stabilise falling prices," he said.

Oil palm planters, while admitting the lowering of the 23 per cent CPO tax will allow refiners be more competitive, said a more practical rate is between 4 and 5 per cent.

“The proposed rate of between 8 to 10 per cent is still prohibitive. If the CPO tax rate is lowered to between 4 and 5 per cent, it is still bearable for planters,” a Sabah-based planter grudgingly said.

“Over here, we’ve to sell our fruits at huge discounts to millers compared to planters in Peninsular Malaysia. Apart from paying corporate tax to the federal government, we also have to pay sales tax to the Sabah government,” he told Business Times via phone interview.

Separately, an oil palm planter in the Peninsular concurred that the lowering of CPO tax to between 4 and 5 per cent is a more realistic option.

“The proposed reduction in CPO tax to between 8per cent and 10 per cent is still too prohibitive. At between 4 and 5 per cent, the problem can be realistically tackled in two prongs. First, producers can still bear the burden and second, it’ll facilitate some CPO exports,” he said.

"These are short-term solutions as longer term excess refining capacity in Indonesia will reduce their competitiveness," he added.

Currently, oil palm planters in the Peninsular pay windfall tax when CPO price exceeds RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak pay that tax when the price surpasses RM3,000 per tonne.

The planter suggests that the government abolish the current punitive windfall tax and have the proceeds of the CPO tax to subsidise cooking oil instead.