Windfall taxes again for palm oil companies?

Oil palm plantation companies in Peninsular Malaysia could start paying windfall taxes again in May and June should the average price of crude palm oil (CPO) touch RM2,500 per tonne this month.

But renewed payment of the windfall tax could be shortlived as CPO prices were likely to retreat as production increased in the second half of the year, industry players and analysts said.

On Bursa Derivatives Exchange yesterday, the CPO price for the benchmark June contract gained RM150 to close at RM2,485.

The Malaysian Estate Owners Association (MEOA) president Boon Weng Siew told StarBiz that planters might pay windfall taxes, at the most, for two months.

“The uptrend in CPO prices can fizzle out with the start of the peak production season from May to November,” he said.

OSK Research plantation analyst Alvin Tai is also maintaining a cautious view on CPO prices as he expects a strong recovery in palm oil production in the second half this year.

The current decline in palm oil inventory had helped drive CPO prices higher, he said, adding that the current price rally was mostly due to weak production rather than strong exports.

Tai said inventory would again go up if production recovered and the rise in production was not matched by an increase in exports.

Maybank Investment Bank analyst Ong Chee Ting is also wary of the current high CPO prices, and is maintaining an “underweight” call on the plantation sector.

CPO futures could trade in the range of RM2,300 to RM2,400 per tonne on concerns over tight supplies, according to MEOA’s Boon.

Ong said with spot CPO prices increasing 18% month-on-month to RM2,351 per tonne, “we are looking at raising our 2009 CPO price assumption to RM1,800 from RM1,600 previously.”

This would raise the net profit forecasts of large-cap plantation stocks by 10% to 25% this year, Ong said.

Under the recent mini budget, the Government set RM2,500 per tonne as the new CPO price threshold for windfall tax collection for peninsula planters and RM3,000 for Sarawak and Sabah planters.

In 2008, an estimated RM260mil to RM300mil of CPO windfall taxes were collected by the treasury from oil palm plantation companies based on the then CPO threshold price of RM2,000 per tonne.

Planters stopped paying the windfall tax last October when CPO prices dropped below RM2,000 per tonne.

Something2Share:

Tan Sri Lee Shin Cheng (the owner-Chairman of IOI Corporation) thinks CPO prices could remain between RM 2,600 - 2,800 per tonne for the rest of 2009. Bullist or not, if prediction of my ex-boss comes true, then it's Win-Win situation for the plantation companies and the Government.