6/7/907  (The Economic Times)  -  DELHI: The government on Wednesday clarified the actual duty cut on crude palm oil was 5% and not 10% as notified on Tuesday. The bureaucratic error threw the domestic vegetable oil market into turmoil. The market, which fell sharply on Tuesday, rose again on Wednesday after it was confirmed the duty on crude palm oil was finally 45% and not 40%.

“We have never experienced such a problem. The mess has put the industry and importers into great inconvenience and financial losses. The way the episode has been handled was not expected,” apex industry body Solvent Extractors Association executive director BV Mehta said.

The industry believes the country has become a laughing stock in the world market because of the error. “People are laughing at us abroad. Traders there now want to confirm if the new notification has been signed by anyone or not. How is such an error possible when so many officers are responsible for each notification?” a Mumbai-based trader said.

The big gainers are the palm oil importers who cleared cargo at 40% but did not enter a deal to sell the oil. They can now sell the cheaper oil at a higher price.

For plantations in Malaysia too, it was an unexpected windfall. At 40% duty, the price difference between soya and chief rival palm oil narrowed by Rs 1,000 per tonne. This made palm oil more attractive to Indian importers vis-a-vis soya. As a result, a lot of business is learnt to have been done in Malaysia on Tuesday.

“According to our information, Malaysia sold 35,000 tonnes c&f to India on Tuesday on the back of the difference while there was hardly any action in soya. Today, the difference between soya and palm has widened again because duty on palm has risen. So, Malaysian refineries were able to sell more,” a Mumbai-based MNC trading company’s chief trader said.

However, those who bought palm oil on Tuesday from Malaysia may have to wait a bit longer before they find takers for their stocks since a spurt in prices lowers demand.

Even high seas sales are learnt to have been hit. “In most deals, brokers usually state the duty would paid as per a specific notification number. Now that the notification has changed and duty has gone up, a few buyers are reneging on their deals. Their argument is that since the notification number has changed, the deal is null and void,” a trader said.

In India, the worst hit in the chaos were large vegetable oil importers who sold oil cheaper on Tuesday but did not clear their cargo at 40%. They will now have to pay Rs 1,000 per tonne from their pocket due to the higher actual duty when the ships dock here. Companies such as Ruchi Soya, Adani group, Liberty Oils and several refineries in Kandla are among the large importers active locally.

“On Tuesday, we were told the duty is 40%. So we sold imported CPO in the local market at Rs 470 per 10 kg in advance without paying duty. However, on Wednesday, it cost us Rs 480 per 10 kg because we paid a duty of 45%. Our buyer has made money but we have lost a lot,” a senior official at of the country’s largest vegetable oil refining companies said.

Fortunately for the market, the loss may still be easy to recover. There is a genuine short supply of vegetable oils in the country and with festivals round the corner, traders are expecting a price spike between August 15 and mid-September. “Indian prices are at par with world prices now. So they will move in tandem. Though the error in duty numbers certainly led to temporary uncertainty and loss in profit, they will not be carried on to company books because the market is bullish. Everything will get sold,” an industry watcher said here.