Borneo Post Online (06/03/2018) - KUCHING: India’s raised import duties on crude and refined palm oil is expected to cause a short-term negative impact but a long-term neutral impact to crude palm oil (CPO) prices.

Last Thursday, the Indian government announced that they would be raising their import duty on CPO and refined palm oil to 44 and 54 per cent from 30 and 40 per cent respectively.

The duty increase is aimed to help support local farmers in India as it would help lift oilseed price, encourage domestic supply for crushing and help cap edible oil imports.

However, as the difference of import duty between CPO and refined palm oil stayed at 10 per cent, MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that local refineries in India would not benefit much and cooking oil prices in India was expected to increase.

“Effectively, the all in duty on CPO which is inclusive of 10 per cent surcharge, is estimated to be 48.8 per cent. As for refined palm oil, the effective duty is estimated to be 59.4 per cent.

“As the increase is targeted only to palm oil, we do not expected India to boost their purchase of soybean oil and rapeseed oil as the import duty on these oils are lower as compared to palm oil,” explained the research arm in a note yesterday.

With lower demand for palm oil from India, the immediate impact will be a short-term negative impact on CPO prices.

This effective was seen almost immediately as the Malaysian palm oil futures slumped up to 3.2 per cent just one day (March 2) after the announcement of the raised import duties.

The slump will be rather short-lived however, as MIDF Research is expecting CPO prices to normalise after just two months as India’s consumption is only 11 per cent of oils and fats globally – leaving the demand from the other 89 per cent expected to remain intact.

“We believe that the news should result in higher price for soybean oil and rapeseed oil globally in the near term as India increases their purchase. As a result, the discount between palm oil against soybean oil and rapeseed oil are expected to increase.

“In the long run, this will improve the competitiveness of palm oil against soybean oil and rapeseed oil and hence increase the demand for palm oil in other major consumer countries such as China, European Union, United States and Pakistan.

“Overall, the impact on palm oil is expected to be neutral in the long run as the demand for palm oil is still resilient due to its price competitiveness in the global vegetable oil market,” justified the research arm.

With that said, MIDF Research reiterates that its view on the plantation sector is remaining positive due to improved demand outlook for palm oil in 2018 as the global economy grows and leads to a higher consumption per capita.

On the supply side, the research arm also guides that there is a consensus estimate of huge supply growth that may not be fully realised due to ongoing labour shortages and the potentially high replanting activity in Indonesia.

“Note that Indonesia plans to replant up to 165,000 ha of oil palm plantation land this year. This could limit the supply surge by between 0.5 to 0.6 million tonnes assuming oil yield of 3.5 MT per ha.”

Read more at http://www.theborneopost.com/2018/03/06/india-raising-palm-oil-import-tax-is-short-term-negative/