KUALA LUMPUR – Research firms believe that India’s import duty hike on crude palm oil (CPO) will reduce the price competitiveness of the commodity against other edible oils in the country, resulting in higher cooking oil prices with higher duties.
In a research note today, CGS-CIMB said the move would be a negative development for palm oil as the revised effective import duty for CPO of 35.75% is 5.5% ppts higher and result in higher palm oil price for consumers in India.
“We estimate the revision will reduce CPO’s advantage in terms of duty gap against other competing edible oils like crude soybean oil from 8.25% ppts to only 2.75% ppts,” it said.
India cut the import duty on CPO from 27.5% to 15%, effective yesterday in its 2021 budget.
It also lowered the import duty for crude soybean oil and crude sunflower oil from 35% to 15%, while imposing a new 17.5% agriculture infrastructure and development (AID) cess on palm oil and 20% AID cess on soybean oil and sunflower oil.
“After the introduction of the additional cess, the effective tax difference between CPO and refined palm olein narrows to 13.75% from 19.25% previously,” it said.
As such, the research house said the revision will have a negative impact on India’s palm oil refining industry and could favour imports of processed palm oil over CPO into India.
This was in view of the high export levy and export tax currently imposed on CPO in Indonesia, making Indonesian palm oil refiners more competitive, it said.
CGS-CIMB also said that the new revision would be a slight positive for Malaysian and Indonesian refiners, as well as Indian farmers, although it would be a negative for upstream plantation companies and Indian refiners.
Similarly, Maybank Kim Eng said the increase in import duty has eroded the price advantage of CPO vis-à-vis other crude and refined vegetable oils.
“With the new revision, the import duty differential between CPO and other crude vegetable oils has now narrowed to just 2.5% in February 2021 compared with 7.5% in November 2020,” it said, adding that CPO would lose some market share back to sunflower or soybean oils.
In general, the research firm expects slower import of CPO by India in coming months as the country has somewhat rebuilt its inventories over the past few months with its stockpile at 1.815 million tonnes as at January 1, 2021.
“Positively, after the recent CPO price correction, the third month of CPO futures is now at US$110 (RM445) per tonne discount to US soybean oil at the close of the Bursa Malaysia Derivative Exchange yesterday.
“The widened discount is seen to be supportive of demand again, compared to near price parity a month ago,” it added. – Bernama, January 3, 2021
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