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Indonesia palm export levy 'may yet be reduced'

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Indonesia's raised palm oil export levy, which producers may end up embracing if it bolsters demand, may prove less punitive than initially foreseen, industry veteran Richard Robinow said.

Since Agrimoney.com in mid-March revealed the potential levy rise by Indonesia, the top palm oil exporter, final clearance of the proposed reform has missed a series of supposed deadlines for presidential approval.

The delay reflects continued efforts to reform the move, which would see a $50-a-tonne levy imposed on exports, which are currently tax exempt, after the extent of market weakness drove prices below a threshold levy.

"There is a certain amount of lobbying going on," said Mr Robinow, chairman of Indonesian palm oil producer REA Holdings, adding that this could see the tax reduced.

"I would not be surprised if the levy ended up lower than envisaged currently," he said.

Biodiesel expansion

Many producers have cautioned over the levy, with palm oil group Sipef on Thursday warning it would "end up hurting the plantations and smallholders", although "benefiting the downstream industry".

Vegetable oil processors - for which the government in February announced a jump to 4,000 rupiah per litre, from 1,500 rupiah per litre in biodiesel subsidies – will also likely benefit from depressed domestic palm prices, if the export levy spurs a build-up in domestic supplies.

However, the extent of opposition by palm oil producers to the export tax may ultimately depend on the level to which proceeds from it are used to support Indonesia's expansion in biodiesel, implying increased domestic demand for the vegetable oil.

"I don't think there is much of a problem with it, it if ends up taking a chunk of palm oil off the market to go to biodiesel production," Mr Robinow told Agrimoney.com.

"What the industry is not wanting is to see $50 a tonne taken off their meagre revenues and for that not go to biodiesel but be largely squandered."

EU boost?

He also highlighted an extra potential support to palm oil demand from European Union proposals to ban sales of food containing so-called trans-fats, which are produced when many vegetable oils, such as rapeseed oil and soyoil – but not palm oil - are processed to make the shortening used, for example, in making biscuits.

"People believe will be a support for palm oil [prices]," said Mr Robinow, whose family owns nearly 30% of Rea, and who is stepping down as chairman at the end of the year.

The European Union is the second biggest user of vegetable oils, at 25.3m tonnes in 2014-15 on US estimates, of which 6.65m tonnes is palm oil.

In the important Chinese and Indian markets, demand may be boosted by a greater sensitivity to current prices.

Profits rise

The comments came after REA Holdings, which controls more than 100,000 hectares in Indonesia, unveiled a 73% jump to $21.98m in earnings for 2014, on revenues up 13.9% at $125.9m.

The improved in revenues was helped by rising palm fruit volumes, and by a higher sales price, up 2.6% at $665 a tonne – a reflection of the "improved quality" of the crude palm oil the group produced, besides by a reduced take by Indonesia's export tax.

Broker FinnCap retained a "hold" rating on REA shares, citing the group's "limited" cash availability, but also noting that it is already trading at a substantial discount - at the equivalent to $10,500 per hectare, compared with a sector average of $19,000 per hectare.

VSA Capital retained a "buy" rating on the shares, noting REA's move into stone quarrying and into electricity generated from methane produced from its operations.

REA shares closed 0.6% higher at 320p in London.

By Agrimoney.com

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