Indonesia May Cut Palm Oil Export Tax, Minister Says

By Yoga Rusmana

Oct. 13 (Bloomberg) -- Indonesia, the biggest producer of palm oil, may cut its export tax as part of a revision of its duty system after prices plunged more than 50 percent in the past six months, Agriculture Minister Anton Apriyantono said.

``We're thinking of revising our regulations,'' he said in an interview today. The option is ``to reduce the export tax if the price stays below $500 a ton. If you adjust the tax, the price can be more competitive.''

Indonesia joins Malaysia in signaling measures that may boost exports of the vegetable oil to prop up domestic prices and reduce stockpiles. The two countries produce 80 percent of the world's supply of the oil used mainly for cooking. Prices have slumped to their lowest in almost two years on rising output and concern the credit freeze may cut raw-material demand.

``Any effort to boost exports is helpful'' short term as lower inventory bolsters prices, Ben Santoso, an analyst at DBSVickers Securities (Singapore), said by e-mail today. Still, ``the concern now is weakening global demand.''

The Indonesian government is seeking ways to help farmers cope with the plunge in commodity prices before parliamentary and presidential elections next year.

The move ``will make the country's palm oil more competitive,'' said Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas in Jakarta. ``It will definitely help producers cope with rising production costs.''

Biofuel Mix

The country will also make it mandatory to mix biofuel with gasoline and diesel starting in October, Energy Minister Purnomo Yusgiantoro said Sept. 26. Diesel used for transportation must have at least 1 percent biofuel content, while the minimum amount for industrial use is 2.5 percent.

Malaysia is taking measures to help growers. The country raised the limit on the amount of unprocessed palm oil that may be exported in a bid to cut rising stockpiles and boost prices, Plantation Industries and Commodities Minister Peter Chin Fah Kui said today. The government boosted the ceiling by 50 percent to 3 million tons.

Palm oil inventories in Malaysia gained 5.5 percent to 1.95 million tons in September, the third-highest on record.

``Palm oil stocks are building up,'' Chin told reporters outside Kuala Lumpur. ``That is our overall worry.''

The global credit freeze may make it harder for palm oil growers to obtain loans to expand their plantations, curbing growth of palm oil production in Indonesia in the next two to three years, Apriyantono said today.

Export Tax

Indonesia would probably produce 19.4 million tons of palm oil next year, he told reporters Aug. 11. That's up from 18.6 million tons this year, according to Derom Bangun, president of the country's palm oil association.

The government cut the crude palm oil export tax rate and the base price to calculate the levy for October, an official at the Ministry of Trade said Sept. 22.

The base price to calculate the tax fell to $736 a ton, while the tax rate was reduced to 7.5 percent, said Diah Maulida, director general for foreign trade at the ministry. The September base price was $902 and the tax rate 10 percent.

Palm oil for December delivery jumped 3.5 percent to 1,835 ringgit ($525) a ton on the Malaysia Derivatives Exchange today.

To contact the reporter on this story: Yoga Rusmanabio me in Jakarta at bbjakarta@bloomberg.net.