FIRST RESOURCES LIMITED (SGX:EB5)
BUMITAMA AGRI LTD. (SGX:P8Z)
Regional Plantations - India’s Cut Of CPO Import Duty Will Boost CPO Demand
Sector call upgraded to Positive (from Neutral)
- India’s cut in CPO import duty to 27.5% will make CPO more attractive as palm oil is set to regain some of market share it lost to sunflower and soybean oils this year. But most of the benefits will likely accrue to Indonesia origin as Malaysia’s CPO export duty exemption will expire on 31 Dec 2020.
- The unintended consequence will be a quicker build-up in Malaysia’s MPOB stockpile in 2021 which the market tracks for price discovery. A quicker stockpile build-up will hasten the seasonal CPO price correction by mid- 2021.
- Following our recent earnings and target price upgrades for stocks under coverage, we now raise our sector call to Positive (from Neutral).
- Our top regional BUYs are First Resources (SGX:EB5), KLK, SOP and BPLANT.
India cuts import duty of CPO by 10-ppts to 27.5%
- According to Reuters and Bloomberg, India has cut the import duty of CPO by 10-ppts to 27.5%. The reduction was effective 27 November. India has maintained the duty structure on crude soybean oil and crude sunflower oil at 35%.
- It has also maintained the import duty of refined oils at 45%. India has traditionally adjusted import duties to
- control its food inflation and to
- provide a minimum price support for its domestic farmers.
India still restricts imports of refined palm oil
- The cut in import duty of CPO has boosted the competitiveness of CPO vis-à-vis other crude and refined vegetable oils. Sandeep Bajoria, chief executive of Sunvin Group - a vegetable oil broker, was quoted by Reuters as saying that palm oil imports are expected to rise by around 100,000t every month from December (equivalent of +1.2mt per year).
- Recall that India bought 9.4mt of palm oil (crude plus refined) or 63% of its total imports of 14.9mt in the 2018/19 Nov/Oct marketing year. But with RBD Palm Olein placed under the Restricted List w.e.f 8 Jan 2020, India’s imports of refined palm oil have dropped sharply since.
- For Nov 2019-Sept 2020, India’s palm oil imports fell to 6.44mt (-25% y-o-y) from 8.63mt the corresponding period a year earlier. During this period, palm oil lost market share to soybean oil and sunflower oil.
Indonesia to benefit the most in 2021
- In general, while the import duty cut will surely favour more palm oil imports into India during 2020/21 Nov/Oct marketing year, we believe the main beneficiary will be Indonesian CPO origin. Indonesia will likely regain bigger market share at the expense of Malaysian CPO origin once MY’s CPO export duty exemption ends on 31 Dec 2020.
- Recall that the Malaysia government had exempted the export duty of CPO and CPKO between July and Dec 2020 after COVID-19 decimated demand at the onset of the pandemic. Citing the Plantation Industries and Commodities Ministry, the Malaysia government currently has no plans to extend the tax exemption beyond 31 Dec 2020.
- Come 1 Jan 2021, we expect Malaysian’s CPO export to attract ~8% export duty (or ~MYR270/t) assuming CPO price stays at MYR3,430/t (as at 26 Nov).
- At the same price level, Indonesia’s CPO export duty will be just USD18/t or ~MYR75/t. Furthermore, the Malaysian growers have a general reluctance to pay CPO export duty in the past (ie not export CPO). We are keeping our CPO ASP forecast of MYR2,500/t for 2021.
Ong Chee Ting CA
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-11-29
SGX Stock
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1.960
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