The Indonesian government has increased its export levy on palm kernel shell (PKS) to a record $15/t, from $10/t.
The hike in the levy — which comes into force today and is paid in addition to export tax — brings the total export tax package for Indonesian PKS to $22/t. It puts both the levy and the overall tax payment at their highest since Argus began assessing Indonesian PKS spot prices in May 2017.
The finance ministry announced on 29 May that it would change the levy. All payments go into Indonesia's crude palm oil (CPO) fund to support replanting and sustainable practices by smallholders. Export duty had been linked to the country's monthly CPO benchmark since December 2018, but the latest move uncouples the two and fixes the levy at $15/t for an undisclosed period.
The government's decision to fix the levy surprised many market participants, who had expected a lower export rate for June because of weakened CPO spot prices. CPO prices have fallen because of a reduction in global demand amid the Covid-19 pandemic.
Some PKS suppliers expect the higher export rate to push Indonesian PKS spot prices up further and potentially increase demand for Malaysian PKS exports, which are not subject to export levies and taxes. Argus assessed the fob east coast Sumatra Indonesia PKS spot price at $109.21/t on 27 May, when the total tax package was $17/t.
The increase in the export levy was likely driven by mounting pressure to fund Indonesia's 30pc biodiesel transport mandate (B30), which was introduced in January. The country's oil palm plantation fund management agency (BPDPKS) uses national CPO funds to support the mandate by bridging the gap between prices for traditional diesel and more expensive locally produced palm-based biodiesel.
But the spread between diesel and palm-based biodiesel prices has grown significantly as a result of the recent decline in crude prices. BPDPKS distributed around $157mn in subsidies last year, but at the current rate will require more than $2bn/yr to maintain its financial support of the the increased B30 mandate, according to the US Department of Agriculture.
Indonesia's PKS export levy stood at zero for the whole of 2019, when the CPO price was low. It then rose to $10/t for January-May this year, as the CPO benchmark price climbed above $619/t.
Unlike the PKS export levy, Indonesia's PKS export tax remains linked to its CPO monthly benchmark. The export tax on PKS remains at $7/t for June as the CPO benchmark price is $568.94/t.
Indonesia's PKS export tax rises to $10/t when the CPO benchmark is $750-800/t, to $11/t when it is $800-850/t, and to $13/t when it is $850-900/t.
