The Indonesian government has officially confirmed a reduction in export levies effective from 21 September, a development expected to benefit all planters operating in the region. This move is anticipated to provide medium-to-long term advantages for companies such as SD Guthrie (SDG), Bumitama Agri (BAL), First Resources (FR), Genting Plantations (GENP), Kuala Lumpur Kepong (KLK), and Sarawak Oil Palms (SOP), which have significant planted areas in Indonesia. The unanimous decision to lower the export levies aims to enhance price competitiveness in the palm oil sector.
The revised export levies will see a new flat rate implemented: 7.5% for crude palm oil (CPO), 4.5% for refined, bleached, and deodorised (RBD) palm oil, 4.5% for RBD palm olein, and 3% for biodiesel. Previously, the Indonesian government imposed levies ranging from USD55 to USD240 per tonne, determined by reference prices set by the trade ministry. The recent announcement is expected to result in significant savings for exporters, with an estimated reduction of USD27.04 per tonne of CPO based on September's reference price.
The introduction of the new levies is projected to benefit both upstream and integrated players, potentially allowing for higher net CPO prices in the future, even as supply conditions normalise. Analysts forecast that planters will achieve improved net receipts if global CPO prices remain above USD1,200 per tonne. However, the current high prices may not be sustainable in the long term, as broader discounts may be necessary to maintain demand amid high prices that have made CPO less competitive against other oils.
Following the recent surge in CPO prices, which has led to premiums over other oils, Indonesia's decision comes at a critical juncture, particularly in light of India's recent hike in import taxes by 20 percentage points. The move by Indonesia is designed to offset the competitive disadvantage created by these import taxes and to stabilise the market for CPO.
In the wake of these developments, analysts have provided their recommendations for plantation stocks. SD Guthrie (SDG) maintains a BUY rating with a target price of RM5.20, while Sarawak Oil Palms (SOP) is also rated BUY with a target of RM4.10. Bumitama Agri (BAL) is similarly rated BUY, with a target price of RM0.78. In contrast, Kuala Lumpur Kepong (KLK) and Genting Plantations (GENP) are rated as HOLD, with target prices of RM21.80 and RM5.95, respectively.
The outlook for palm oil remains cautiously optimistic, with expectations for improved financial performance among planters, driven by the new export levies. As the situation evolves, stakeholders will closely monitor how these changes impact the broader market dynamics.
Source: Maybank
Title: Indonesia confirms cutting export levies