Palm | Kelapa Sawit

KUALA LUMPUR, Oct 15 (Reuters) - Malaysia may continue issuing a tax free crude palm oil quota to some firms next year, a senior industry source told Reuters on Monday, as planters resist a government plan to abolish the export facility in the word's No.2 producer of the edible oil.

The source, who has direct knowledge of government policy making, said some plantation companies had asked the commodities ministry to make an exception so that firms with refineries overseas can maintain profit margins.

"There are already some protests. Some of the planters are asking the government to reconsider and make exceptions," said the source, who could not be identified as he is not authorised to speak to the media.

Planters have relied on an annual tax free crude palm oil export quota of about 3 million tonnes to feed their overseas refineries, limiting feedstock costs and turning the sector into one of the most profitable in global agriculture.

Malaysia last week announced plans to scrap the duty free facility from Jan. 1, 2013 to help refiners, who say margins have come under pressure as the quota artificially removes crude palm oil from the market and raises feedstock costs.

"The government last week made a decision to help the downstream part of the palm oil industry by removing the quota and keeping the crude palm oil export tax at a manageable level," said the source, in reference to a plan to cut the tax to 4.5-8.5 percent from 23 percent currently.

"The big planters want some exceptions and the model is going to be altered," the source said.

UNDER SCRUTINY

The export quota has come under scrutiny after Indonesia, the world's top producer, slashed its refined palm oil export tax to half of the crude grade in September last year that boosted margins for local processors.

Indonesian exporters were then able to offer cargoes at a cheaper price, grabbing market share away from Malaysia and helping to lift stocks in its competitor that hit a record high of 2.48 million tonnes in September.

Planters at an industry conference in Kuala Lumpur on Monday said the government's announcement last week would hurt future earnings and affect incomes of small farmers who get higher domestic palm oil prices for the tax quota.

Keeping farmers happy is key for the government which is headed for elections within seven months.

"The government needs to be careful and not anger the farmers," said a trader with a listed plantation company. "Companies like Felda Global, Sime Darby and IOI are also important to help as it will boost the feel good factor before the elections."

Analysts say the government is likely to keep the export quota for planters that have refineries overseas and remove those licence holders who did not make use of their facility to prevent leakages in the system.

"Potentially the government could keep the export quota for those who deserve it. I think the government announced their plans early so they could gauge the reaction," said Ben Santoso, a plantations analyst with DBS Bank in Singapore.