04/01/2008 (Reuters), New Delhi - India, the world's leading vegetable oil importer, may cut customs duties on oils to rein in a spike in domestic prices and to keep a lid on inflation pressures, traders said on Friday.

"The sharp rise in prices of oils in the last fortnight is a cause of concern to the government," said B.V. Mehta, executive director of the Solvent Extractors' Association of India.

"This might compel the government to reduce the duty on vegetable oils in the near future to safeguard consumer interests."

Indian soyoil futures fell on Friday on market talk the government may intervene to lower edible oil prices.

At 4:25 p.m. (1055 GMT), the January contract on the National Commodity and Derivatives Exchange was down 0.54 percent at 559.35 rupees ($14.2) per 10 kg. The February contract fell 0.52 percent to 566.70 rupees.

"The market is worried the government may lower import duty on edible oils to contain prices," Ravi Bhushan, an analyst with ICICI Direct, said.

Prices of refined soyoil in the central city of Indore fell 0.55 percent to 53,800 rupees per tonne.

In Malaysia, the March palm contract fell 0.48 percent to 3,120 ringgit ($950.6) per tonne.

Soyoil and palm oil are related commodities and their prices often move in tandem.

The country's edible oil purchases for the oil marketing year that ended in October rose 6.7 percent to 4.71 million tonnes. It mainly imports palm oils from Malaysia and Indonesia and soy oils from Argentina and Brazil.

Traders said the government might effect a 10 to 15 percent cut in customs duties of oils, mainly crude palm oil, which currently carries a 45 percent duty, and crude soybean oil that attract 40 percent.

"Domestic prices are high, but lower than international prices as tariff values have remained frozen," said Govindbhai Patel, a leading oil dealer and trade official in Gujarat.

"The government may think in terms of reducing duty by 10 to 15 percent," he said.

Since August 2006, the tariff value of crude palm oil has been retained at $447 a tonne and crude soybean oil at $580. The tariff value is considered as the base value to calculate import duties for different edible oils.

India normally reviews the base prices every 15 days to take into account international prices, domestic demand and supply, and inflation.

India's inflation inched up in late December with the wholesale price index rising 3.50 percent in the 12 months to Dec. 22, slightly higher than the previous week's rate of 3.45 percent, data showed on Friday.

Traders said prices of Malaysian crude palm oil last week had shot up to $995 per tonne cost and freight India, up $70 from $925 on Dec. 14. Crude soybean oil has risen to $1,175 per tonne from $1,106 two weeks ago.

"Domestic prices too are getting firmer," said one trader.

Traders said soybean oil was being currently quoted at 55,800 rupees per tonne, up from 52,500 rupees in the middle of December.

Groundnut oil was at 66,000 rupees per tonne against 60,500 rupees two weeks ago while rapeseed oil was selling at 55,500 rupees per tonne, up 2,800 rupees from mid-December, traders said.