MARKET DEVELOPMENT
India Increases Duty on Cooking Oils to Stem Cheap Imports
India Increases Duty on Cooking Oils to Stem Cheap Imports
21/09/2015 (Bloomberg) - India increased taxes on overseas purchases of palm and soybean oils as a slump in global prices triggered record imports, hurting domestic oilseed growers and refiners. Palm oil futures in Kuala Lumpur fell to a one-week low.
The duty on crude palm and soybean oils was raised to 12.5 percent from 7.5 percent, while the tariff on refined oils was increased to 20 percent from 15 percent, the Central Board of Excise and Customs said in a notification on its website.
While higher taxes may fuel costs for Indian consumers, they may hamper efforts by top palm oil producers Indonesia and Malaysia to drain near record inventories and shore up prices. Palm oil, used in everything from chocolates to cosmetics, is in a bear market and soybean oil is trading near a nine-year low as China’s economic slowdown and a rout in crude prices hurts demand and worsens a global glut of cooking oils.
“Higher Indian taxes will dent the export book of the producers to some extent in the short term,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore Pte. “The cost will be passed on to consumers. I guess demand for the world’s cheapest oil will still continue in a robust manner.”
Import Dependence
India meets more than half its cooking oil requirements through imports with palm oil shipped from Indonesia and Malaysia and soybean oil from the U.S., Brazil and Argentina. Vegetable oil purchases in the 10 months through August surged 23 percent to 11.7 million metric tons from a year earlier, the Solvent Extractors’ Association of India said on Tuesday. That’s increased the country’s dependence on imported oils to almost 70 percent, it said.
“We’ve seen seen a significant drop in exports to India in August and an
increase in import duty will definitely add more pressure,” Fadhil Hasan, executive director of the Indonesian Palm Oil Association, said by
phone from Jakarta
The benchmark palm oil futures contract on Bursa Malaysia Derivatives retreated 1.2 percent to 2,103 ringgit ($500) a ton on Friday, lowest level at close since Sept. 8. Prices slumped to a six-year low of 1,863 ringgit on Aug. 25, while soybean oil tumbled to 25.70 cents a pound on Aug. 24, the lowest since 2006.
’Not Enough’
“While the increase in duty is a welcome step, it’s not enough to help refiners and farmers,” B.V. Mehta, executive director of extractors’ association, said by phone from Mumbai on Friday. “The difference in duties on crude and refined oils should have been higher. Imports of refined oils will continue to come in large quantities.”
While the association wanted the government to triple the tax rates to stem cheap imports after the capacity utilization at oilseed processing units fell to 30 percent, prospects of a lower domestic crop fanning price increases may have prompted the government to settle for a lower increase, Mehta said.
Monsoon rain in India is headed for the first back-to-back shortfall in three decades as the strongest El Nino in almost two-decades strengthens. The country’s oilseed crop may fail for a second year because of the weak monsoon rains, prompting the world’s biggest palm oil buyer to keep imports near a record in 2015-16, researcher Oil World said on Sept. 8.
The duty on crude palm and soybean oils was raised to 12.5 percent from 7.5 percent, while the tariff on refined oils was increased to 20 percent from 15 percent, the Central Board of Excise and Customs said in a notification on its website.
While higher taxes may fuel costs for Indian consumers, they may hamper efforts by top palm oil producers Indonesia and Malaysia to drain near record inventories and shore up prices. Palm oil, used in everything from chocolates to cosmetics, is in a bear market and soybean oil is trading near a nine-year low as China’s economic slowdown and a rout in crude prices hurts demand and worsens a global glut of cooking oils.
“Higher Indian taxes will dent the export book of the producers to some extent in the short term,” said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental Singapore Pte. “The cost will be passed on to consumers. I guess demand for the world’s cheapest oil will still continue in a robust manner.”
Import Dependence
India meets more than half its cooking oil requirements through imports with palm oil shipped from Indonesia and Malaysia and soybean oil from the U.S., Brazil and Argentina. Vegetable oil purchases in the 10 months through August surged 23 percent to 11.7 million metric tons from a year earlier, the Solvent Extractors’ Association of India said on Tuesday. That’s increased the country’s dependence on imported oils to almost 70 percent, it said.
“We’ve seen seen a significant drop in exports to India in August and an
increase in import duty will definitely add more pressure,” Fadhil Hasan, executive director of the Indonesian Palm Oil Association, said by
phone from Jakarta
The benchmark palm oil futures contract on Bursa Malaysia Derivatives retreated 1.2 percent to 2,103 ringgit ($500) a ton on Friday, lowest level at close since Sept. 8. Prices slumped to a six-year low of 1,863 ringgit on Aug. 25, while soybean oil tumbled to 25.70 cents a pound on Aug. 24, the lowest since 2006.
’Not Enough’
“While the increase in duty is a welcome step, it’s not enough to help refiners and farmers,” B.V. Mehta, executive director of extractors’ association, said by phone from Mumbai on Friday. “The difference in duties on crude and refined oils should have been higher. Imports of refined oils will continue to come in large quantities.”
While the association wanted the government to triple the tax rates to stem cheap imports after the capacity utilization at oilseed processing units fell to 30 percent, prospects of a lower domestic crop fanning price increases may have prompted the government to settle for a lower increase, Mehta said.
Monsoon rain in India is headed for the first back-to-back shortfall in three decades as the strongest El Nino in almost two-decades strengthens. The country’s oilseed crop may fail for a second year because of the weak monsoon rains, prompting the world’s biggest palm oil buyer to keep imports near a record in 2015-16, researcher Oil World said on Sept. 8.