Regional Plantations - Maybank Research 2022-04-26: A More Muted Export Ban By Indonesia?

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Regional Plantations - A More Muted Export Ban By Indonesia?

Indonesia refiners will be slightly disadvantaged

  • While still not official, latest media reports suggest the Indonesia export ban could be more muted than initially envisaged as CPO and RBD Palm Oil are allowed to be exported. But the Indonesia government warned that the ban could be further extended if domestic cooking oil supply remains insufficient.
  • Nonetheless, the winners from this watered-down export ban will still be Malaysia refiners while Indonesia-refiners will be slightly disadvantaged.

Malaysia refiners are beneficiaries

  • Latest media updates suggest the Indonesia export ban could be more muted than initially envisaged as the ban covers RBD Palm Olein, and not CPO and RBD Palm Oil. RBD Palm Olein is said to account for 30-40% of Indonesia’s total palm oil exports. A ban on the exports of all refined oils would have been extremely negative on Indonesia-based refiners, but as RBD Palm Oil is allowed to be exported, the impact on Indonesia-based refiners will be more muted.
  • Prior to this export ban (effective 28 Apr), Indonesia-based refiners were enjoying very healthy margins, thanks to the differential export tax structure between CPO and refined oils. Without the stiff competition from Indonesia-refiners, the Malaysia refiners will have relatively better pricing power for their RBD Palm Olein products (for the duration of the export ban).
  • Already, we observed a sharp expansion in Malaysia refining margins in Mar 2022 when Indonesia imposed export quotas in Feb-Mar 2022 for its DMO (domestic market obligation). Companies with refineries in Malaysia include Sime Darby Plantation, IOI Corp, KL Kepong, Genting Plantation, Sarawak Oil Palms, United Plantations, FGV, and TSH Resources (via a JV).

Possible widening of CPO price gaps between Malaysia & Indonesia

  • While CPO is allowed to be exported, it attracts a higher export taxes compared to refined products. For April 2022, the CPO export tax is US$575/t while that of RBD Palm Olein (US$408/t) and RBD Palm Oil (US$386/t) are much lower. Due to the huge differential export taxes, Indonesia prefers to export refined products to minimize export tax payments.
  • During the low CPO output season, refiners tend to share some of the good margins with growers by paying slightly better prices than normal. As exporting CPO attracts higher export taxes, we anticipate a widening of domestic Indonesia CPO price compared to Malaysia CPO price (if the ban of RBD Palm Olein is in place for an extended period). The price gap between Malaysia-Indonesia has averaged ~MYR1,800/t in Apr 2022 thus far.
  • If Indonesia pushes for more CPO exports in the short term, we envisage the price gaps between Malaysia-Indonesia to widen to ~MYR2,400/t, broadly mirroring the applicable monthly CPO export taxes.

All eyes on Russia-Ukraine war, planting and weather

  • As risk of an outright export ban by Indonesia diminishes, all eyes will be on the Russia-Ukraine war development, the progress planting of spring crops in the Northern Hemisphere (especially in US, Canada, Europe and Ukraine), and weather for price direction in 2Q22.
  • We maintain our MYR5,000/t CPO ASP forecast for 2022E and MYR3,400/t CPO ASP forecast for 2023E.
  • Our sector NEUTRAL call is maintained. Preferred BUYs: IOI Corp, KL Kepong, and we now add back Bumitama Agri (SGX:P8Z) following the watered-down Indonesia ban.

Ong Chee Ting Maybank Research | https://www.maybank-ke.com.sg/ 2022-04-26
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