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Malaysia to Raise Palm Oil Export Tariff, Signaling Higher Soy Oil Prices

24 December 2020

Malaysia announced that it will raise its export tax on Crude Palm Oil, effective in January. 

 

Malaysia uses a stepped structure for palm oil export tax, but the reference price set by the Malaysian Palm Oil Board for January is sufficient to trigger the highest level of tax. The current export tax is capped at 6.5%, but this will rise to 8% in January. Based on the reference price set by the Malaysian Palm Oil Board, Malaysia’s export tax works out to about $68/tonne. 

 

The impact of this increase will be magnified by Malaysia’s decision not to extend the export tax exemption for palm oil – palm oil exports were exempted from the export tax for the second half of 2020 as a COVID-19 relief measure. 

 

Last month, India, a big importer of edible oils, reduced its customs duty on crude palm oil to 27.5% from 37.5% in an effort to quell rising domestic prices. The rise in vegetable oil prices could cause governments worldwide, already feeling threatened by food inflation, to take further action to ensure their food security.

 

The Malaysian government’s move echoes a recent decision by Indonesia to increase its palm oil export levy. Indonesia, the world’s largest producer of palm oil, announced an increase in its palm oil export levy from $55/tonne to a variable levy of $55-$255/tonne two weeks ago. 

 

Palm oil futures in Malaysia broke an 8-year high earlier this month and have kept on rising. Inventories remain nearly 30% below last year's levels and production has been hit by a shortage of migrant workers. 

 

Malaysia’s announcement points to a rise in soybean oil prices, which are highly correlated to palm oil prices. Vegetable oil prices were already rising as La Niña threatens soybean production in South America, and estimates of canola production in Canada hit 5-year lows.

 

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