Indonesian palm oil refiners the winners after tax move

* Refiners, down-stream business gets boost from tax changes

* Indonesian palm oil industry wins upperhand over Malaysia?

* Wilmar, SMART among those likely to benefit

Indonesian palm oil refiners and other downstream firms will be the big winners after the world's top producer made changes to its export taxes this week, analysts and traders said on Friday. 

Southeast Asia's biggest economy will cut the export tax cap on crude palm oil (CPO) to 22.5 percent from 25 percent previously, and on palm oil products (olein) to 13 percent from 25 percent from Oct. 1. 

"If the palm products export tax is slashed from 25 percent to 13 percent, that appears to be quite a significant reduction," said commodities analyst Chen Xin Yi at Barclays Capital.

"At a broader policy level, it makes sense to promote more downstream, value-added industries and refineries will be one of them. 

"In the absence of any changes to Malaysian CPO and palm product export tax structure, and assuming that Indonesian and Malaysian refiners had so far been price competitive, my preliminary assessment is that Indonesian refineries would have an advantage over Malaysian refineries." 

Indonesia outpaced Malaysia to become the top palm oil producer in 2007, and is expected to produce about 23 million tonnes this year.

Exports from the archipelago of 17,000 islands are seen at 17 million tonnes in 2011, with India a top buyer. 

The CPO export tax, set at 15 percent for September, is aimed at securing domestic supply and reducing volatility in cooking oil prices. 

Trade ministry and industry officials meet every month to decide the tax rate for the following month, using the average spot crude palm oil prices in Rotterdam in the preceding 30 days as a reference price. 

The new export rate will be calculated based on CIF Rotterdam prices, Malaysian benchmark and Jakarta future prices, according to a finance ministry document seen by Reuters. 

"The Indonesian CPO producers will now have a greater incentive to sell domestically to the refiners, rather than exporting," said Xin Yi. 

REFINERIES RULE?

Firms with extensive palm interests in Indonesia include Singapore's Wilmar , the world's largest listed palm oil firm, and Sinar Mas Agro Resources and Technology (SMART) .

The government said earlier this year that Wilmar would invest $900 million to build factories in Indonesia to produce palm products such as soap and margarine. 

Palm oil giant SMART plans to invest up to 9 trillion rupiah ($1 billion) until 2015 to make downstream products, the firm said in late March.

"Indonesian refiners gain a much higher refining margin," said a Jakarta-based trader. "This will enable them to reduce their prices and compete with Malaysia." 

(Refiners) have been lobbying intensely," he added. "They hav been expanding their downstream hugely over the past year or already have plans underway as early as this year." 

He added that Malaysia, may now be forced to reduce CPO prices to enable its refiners to be more competitive. ($1 = 2.988 ringgits). Source: Reuters