Sales tax on palm kernel oil could increase input costs of Malaysian oleochemicals players — CIMB Securities

Malaysia’s oleochemical sector could face increased input costs starting July 1, as palm kernel oil, previously exempt from the sales and service tax (SST), will now be subject to a 5% sales tax, according to CIMB Securities.

The house said the revised tax also applies to refined, bleached and deodorised (RBD) palm kernel oil and palm kernel shell, which have been reclassified under the expanded SST framework, affecting 4,800 Harmonised System Codes.

“It remains unclear whether the industry will seek exemptions for these products. The 5% sales tax could erode the competitiveness of Malaysia’s oleochemical industry by increasing raw material costs, although some of the additional cost may be passed on to buyers,” said the house in a note on Monday.

CIMB Securities cited that major Malaysian listed plantation companies with oleochemical operations that could be impacted include SD Guthrie Bhd (KL:SDG), FGV Holdings Bhd (KL:FGV), Kuala Lumpur Kepong Bhd (KL:KLK), and IOI Corporation Bhd (KL:IOICORP).

While fresh fruit bunches (FFB) are exempted, as they are classified as locally harvested raw material, according to the Malaysian Palm Oil Association (MPOA). CIMB Securities noted that the new tax affects downstream manufacturing.

“This is because the sales tax applies only to the manufacturing sector, and FFB is classified as a locally harvested raw material intended for further processing, rather than a manufactured product,” it added.

The firm maintains its crude palm oil (CPO) price forecast at RM4,200 per metric tonne for 2025, and continues to favour IOI Corporation and Hap Seng Plantations Holdings Bhd (KL:HSPLANT) as top picks.

Last Friday (June 13), the Trump administration proposed raising US biofuel blending mandates for 2026 and 2027, with the Environmental Protection Agency (EPA) targeting 24.02 billion gallons and 24.46 billion gallons, respectively, which is up from 22.33 billion gallons in 2025.

This development is supportive of edible oil demand and CPO prices, as the biodiesel mandate will help sustain US consumption of edible oils, according to CIMB Securities.

Under the Renewable Fuel Standard (RFS), refiners must blend biofuels, or buy compliance credits known as Renewable Identification Numbers (RINs). For 2026, the EPA targets 7.12 billion biomass-based diesel RINs, equivalent to 5.61 billion gallons of biodiesel, exceeding industry requests. RIN yields per gallon have been revised down to 1.27 for 2026, and 1.28 for 2027, from 1.6 previously, according to the research note.

CIMB Securities said the proposal could lead to stronger feedstock demand, upside for prices and volumes, and support downstream margins, as local oleochemical refiners could support the higher edible oil usage for the US’ biodiesel feedstock.

US biodiesel output stood at around 16 million tonnes in 2024, while the 2026 mandate would require 19.2 million tonnes. The final rule is for the RFS targets expected by end-2025.