Impact of India's import duty hike on palm oil more muted than expected


Crude palm oil prices on the Bursa Malaysia have shown resilience this week to India's move to hike import duties on palm oil, despite expectations the move would be bearish for the market, participants said Friday.

India's central government last Friday raised import duties on palm oil and soybean oil in response to intense lobbying by domestic vegoil refiners.

Import duties on sunflower oil, canola and other non-edible oils like CPKO were left unchanged.

CIMB Malaysia said in a note Friday that Indian oilseed crushers had been struggling to compete with cheaper edible oil imports, which had reduced both demand and prices for local rapeseed and soybean.

The price of some oilseeds in India had fallen 20-30% below 2016 levels in recent months, to below domestic minimum support prices set for some oilseeds, it said.

The import duty on CPO was doubled to 15% last Friday from 7.5%, on palm olein and refined, bleached and deodorized palm oil or RBDPO to 25% from 15%, and on soybean oil to 17.5% from 12.5%.

Analysts had expected the increased duty on CPO would be negative for prices, because it would make palm oil less competitive into India against other oils, inevitably dampening palm demand.

India is a major importer of palm oil.

However, CPO prices on Bursa Malaysia have been remarkably resilient this week, said CIMB Bank and other market players.

The CPO front month contract closed at MR2,652/mt or $617.68/mt Thursday, little changed from MR2,644/mt last Thursday, before the duties were raised. India's duty differential between olein and CPO is now 10%, up from 7.5% earlier.

An Indian market source said this was aimed at supporting India's domestic refiners, who would now have the advantage.

However, analyst Ali Muhammad Lakdawala cautioned that Malaysian and Indonesian producers could respond to the rise in duties by selling palm olein at a discount to CPO, which would nullify that advantage.


On the soy front, the Indian government reduced the duty differential between refined soy and crude soy to 2.5% from 7.5% earlier, in a move designed to increase the duty cleared price of crude soyoil and thus increase domestic crushing of soy.

This is also likely to make Indian traders more reluctant to import refined soyoil due to longer vessel transit periods, which impact the quality of the landed refined soyoil, said Lakdawala.

Meanwhile, sunflower oil and soybean oil are trading at parity on a CFR India basis, which could result in the replacement of soybean oil with sunflower oil, said Lakdawala.

The hike in import duties on both palm oil and soybean oil make them less attractive for import into India, and origins like Argentina may have to lower prices in order to make soybean oil competitive into India, analysts said.


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