KUALA LUMPUR, April 6 — Palm oil in Malaysia rose to the highest level in more than three weeks after Indonesia, the biggest producer, said it will impose export levies to fund biodiesel subsidies as well as replanting, research and development.

Shippers will pay a levy of US$50 (RM181.50) a metric ton for palm oil and US$30 for processed products starting this month, Sofyan Djalil, coordinating minister for economic affairs, said on April 4. The government will keep the threshold for application of a separate export tax at US$750 a ton, Djalil said.

Palm, used in everything from fuel and candy to instant noodles, slumped 15 per cent in the past year as a plunge in petroleum costs cut its appeal for biodiesel and soybean oil fell to a six-year low. Indonesian prices may drop by about the amount of the levy, according to Wayne Gordon, an analyst at UBS Group AG in Singapore. That would be negative for producers, while refiners may benefit as utilization rates in biodiesel will rise and margins improve, he said.

“In the near term, upstream have a headwind from the tax, downstream get a tailwind,” Gordon said by phone. “The longer term is that if they can get the biodiesel sector sorted out in Indonesia, this is a net positive for the whole sector.”

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Futures climbed 1.8 per cent to RM2,230 (US$614) a ton on Bursa Malaysia Derivatives in Kuala Lumpur today, the highest level at close since March 13.

Biofuel demand

Indonesia has promoted biofuel use to help absorb rising supplies of the world’s most-traded cooking oil and cut carbon emissions. The country boosted the mandated amount of palm blending in diesel to 10 per cent from 7.5 per cent in 2013, and ordered power plants to mix 20 per cent in 2014. The biodiesel subsidy was raised in February to 4,000 rupiah (31 US cents) a litre from 1,500 rupiah and the mandated blending for diesel will increase to 15 per cent in April.

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The country may consume 10 million tons of palm oil in 2015 with about half being used for biodiesel, Trade Minister Rachmat Gobel said today.

Palm oil production in Malaysia, the world’s second-biggest grower, probably climbed for the first time in seven months in March, according to a Bloomberg survey. Output is typically lowest in January and February each year.

“Seasonal production is starting to accelerate,” said Gordon, who expects significant increases in demand from Indonesia’s biodiesel sector may take 18 months to two years. “So I can’t see how that’s a really bullish story for palm prices more generally,” he said.

Expectations for a further decline in crude oil prices and a stronger ringgit could cap gains, Gordon said. Palm’s premium over gas oil has expanded to US$88.14 a ton on April 6 from a discount of about US$259 in August, according to data compiled by Bloomberg. Brent crude declined 1.6 per cent this year after plunging 48 per cent in 2014.

Malaysia’s ringgit strengthened 1 per cent against the dollar on Monday, data compiled by Bloomberg show. — Bloomberg