SDG: Palm Oil Sector Navigates Higher Export Levy for B40 Mandate
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Indonesia has announced an increase in its crude palm oil (CPO) export levy rate to 12.5% from the previous 10%, effective March 1. The levy rate for refined palm oil products will also see an increment, rising to 10% from 7.5%. This strategic move aims to secure funding for the sustained B40 biodiesel mandate throughout 2026.
Policy Adjustment and Rationale
The decision to maintain the B40 mandate, which specifies a 40% palm oil blend in diesel fuel, comes after the Indonesian government identified technical hurdles for the previously proposed B50 mandate. Trials for B50 fuels, particularly for heavy equipment and trains, are ongoing, necessitating the continued support for B40 through a revised funding mechanism. The increase in domestic diesel fuel production capacity also influenced the decision to maintain the current blend.
Officials from the Indonesian Estate Crop Fund Agency (BPDP) confirmed that the heightened levies are specifically designed to bolster the biodiesel fund. Analysis suggests that under the former 7.5% levy rate for refined oils, a fund shortage of approximately USD448 million was anticipated to subsidise B40. However, with the new 10% levy rate, assuming consistent biodiesel volumes in 2026 compared to 2025, a slight surplus of USD135 million is now expected in the biodiesel fund.
Impact on Planters and Sector Outlook
The revised export levy structure is expected to primarily impact Indonesia-centric plantation companies. These players are likely to bear the brunt of higher export levies from March onwards, leading to lower effective Average Selling Prices (ASPs).
In response to these developments, analysts will be reviewing 2026 CPO price assumptions and updating supply and demand estimates. Furthermore, earnings forecasts will be adjusted to account for the changes in the tax structure. The sector’s overall rating remains NEUTRAL, with a continued preference for Malaysian-centric players such as Johor Plantations Group (JPG), Sarawak Oil Palms (SOP), and IOI Corp (IOI) due to their comparatively lower exposure to the increased Indonesian export levies.
