CPO to lose some market share to other oils on India’s duty hike
05.02.2021 (themalaysianreserve.com) - INDIA’S move to raise the effective import duty on crude palm oil (CPO) by 5.5 percentage points to 35.75%, effective Feb 1, 2021, will erode Malaysian palm oil producer price competitiveness, according to Maybank Kim Eng Research. “The increase in February’s import duty of CPO has eroded the price advantage of CPO vis-à-vis other crude and refined vegetable oils.
“Recall that India bought 6.67 million metric tonnes (MT) of CPO or 51% of its total imports of 13.2 million MT in the November/Octo- ber 2019/20 marketing year,” analyst Ong Chee Ting noted.
For November-December 2020, India’s CPO imports rose to 1.34 million MT (14% year-on-year [YoY]) or 55% of India’s total imports of 2.41 million MT as CPO gained market share due to the favourable import duty cut back in November 2020.
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 to 7.5% in November.
“Hence, we believe CPO will lose some market share back to sunflower or soybean oils. While nothing was mentioned about the import duties of refined oils, it is believed to be unchanged at 45%,” he added.
In any case, imports of refined oils made up just 3% of total Indian imports in November/October 2019/20 marketing year, mainly because refined bleached deodorised palm olein was placed under the restricted list since Jan 8, 2020.
“In general, we should see a slower import of CPO by India in the coming months. India has somewhat rebuilt its inventories over the past few months with its stockpile at 1.82 million MT (32% YoY) as at Jan 1, 2021,” he noted.
He further added that after recent CPO price correction, the three months CPO futures contract is now at a US$110 (RM446.60)/MT discount to US soybean oil (versus US$146/MT historical average) as at Feb 2.
“The widened discount is seen to be supportive of demand again, compared to near price parity a month ago,” said Ong.
Based on the market move, Sime Darby Plantation Bhd shares traded flat at RM4.97 per share with trading volume was 66% below the 20-day average.
Kuala Lumpur Kepong Bhd shares rose 0.2% to RM23.80, Genting Plantations Bhd rose 0.9% to RM9.69 at close yesterday from RM9.60 a day before.
Bursa Malaysia Plantation Index (KLPL) rose 1.47% at close yesterday to 7,207.77 amid the negative sentiment affecting shares on India’s CPO import duties revision to the detriment of CPO prices.
Sixteen shares listed under KLPL fell, while 15 others rose led by IOI Corp Bhd that contributed the most to the index advance, increasing 1.66%. Golden Land Bhd had the largest gain, rising 6.58%.
Sarawak Oil Palms Bhd was the biggest drag on the index, declining 0.95% while Pinehill Pacific Bhd had the biggest drop, falling 6.56%. The index advanced 0.88% in the past one year.