12/4/07 MUMBAI (Reuters) - India is likely to reduce import duties on palm oil soon, as the government is concerned that soaring prices of the essential commodity might fuel inflation, a leading industry official said.

The surge in Malaysian palm oil prices, which have gained as much as six percent just this month to an eight-year high, is forcing Indian palm oil importers to hold back signing new deals, said Parvez Kader, managing director of Liberty Oil Mills Ltd, one of India's leading importers of the commodity.

"There is definitely a case for a reduction in duty on palm oil as prices have soared," Kader told Reuters.

Palm oil constitutes more than 50 percent of India's total annual edible oil imports of over five million tonnes, almost half of annual domestic consumption.

On Wednesday, the benchmark third-month June contract on the Bursa Malaysia Derivatives Exchange finished up 35 ringgit, or 1.6 percent, at 2,188 ringgit ($635) a tonne, a level not seen since January 1999.

Some traders are expecting that the duty reduction could come as early as Thursday as the cabinet is scheduled to meet to discuss measures to contain inflation.

"The finance minister is concerned about rising prices. He may take steps to contain edible oil prices," Kader said.

Finance Minister Palaniappan Chidambaram said on Wednesday the government was closely watching output of summer-harvested oilseeds and pulses, and if output improves prices might ease.

SUPPLY WOES

In January, New Delhi reduced import duties on crude palm oil and palm olein to 60 percent and those on refined, bleached, and deodorised palm oil to 67.5 percent. Soyoil carries a customs duty of 45 percent.

India also removed four percent additional customs duty on all edible oils in its federal budget in February, but did not tinker with the basic customs duty on palm oils.

Kader said the landed cost of crude palm oil, which was at $585 a tonne in early January, fell to $545 following the duty reductions.

"Prices started going up again and have touched as high as $695 a tonne due to tight supplies in Malaysia and Indonesia. High soyoil prices have also pushed palm oil up," he said.

But Kader said it was unlikely that palm oil prices would rise much further from current levels. "I think the market is starting to peak."

Kader said although some Indian importers might hesitate signing new deals, others might look to buying soyoil.

"India needs oils and refineries must run. The question is if not palm oil, then some other oil," Kader said.

An expected drop in domestic oilseeds output to 22.6 million tonnes in the year ending October 2007, from 23.9 million tonnes a year ago, is also pushing edible oil prices up, analysts say.