18/10/05 NEW DELHI (Dow Jones)--The Indian government's decision over theweekend to raise the base import price for edible oils may lead to a shiftin demand in favor of crude soybean oil, traders said Tuesday.

The government has revised the base price for crude palm oil, or CPO, to$426 a metric ton, nearly $20/ton higher than the current market price, ina move that has effectively increased the tax on imports.

"The market never went to the level at which the base import price ofcrude palm oil has been fixed.... Traders and refineries will definitelyprefer importing more soy oil than palm oil," said Sandeep Bajoria,president of the Central Organisation of Oil Industry and Trade, or COOIT,a lobby group of domestic edible oils manufacturers and traders.

In India's commercial capital, Mumbai, refined soy oil is alreadyINR2,000/ton cheaper than refined, bleached and deodorized, or RBD, palmoil, and the difference could increase in favor of soy oil if thedisparity in the base price isn't corrected, he said.

At a time when the rupee is strengthening against the dollar, anartificially high base import price will add to the cost of importing palmoil and divert demand toward soy oil, said Sat Narain Agarwal, generalsecretary of Rajdhani Vegetable Oils Suppliers Association, anotherindustry lobby group.

The government Saturday raised the base import price of CPO to $426/tonfrom $402/ton, that of refined, bleached and deodorized palm oil to$436/ton from $420/ton, and that of RBD palm olein to $447/ton from$430/ton. For crude palm olein, the price was increased to $438/ton from$418/ton.

The government also raised the base import price of crude soy oil, but thechange was much smaller at $10/ton, with the price going up to $518/tonfrom $508/ton.

India's federal government sets base import prices for palm and soy oils,and import duties are calculated from these prices regardless of theactual price at which importers buy the commodity.

"The issue is not the scale of the hike but its correlation with actualmarket prices. In case of crude soy oil, the base price is marginallylower than the traded price while for CPO it is significantly higher,"said Agarwal.

Higher imports of soy oil at a time when the domestic soybean crop is duefor harvest is bad for the farm sector as it could depress domesticprices, he said.

Some Say Latest Change Good For Domestic Market

Not everyone, however, is of the opinion that soy oil will now flood themarket, pressuring domestic prices.

"Prices are relatively on the lower side and this entire exercise ofraising base price of edible oils seems to be aimed at giving them anupward push at a time when the domestic harvest of summer sown oilseeds isdue," said Ganasekar Thiagarajan, a Mumbai-based commodities broker.

The move will curb imports at the time of harvest so that farmers getreasonable returns on their crop and are encouraged to plant moreoilseeds, he said.

The base import prices are usually lower than the actual market prices andit is very surprising that it is the reverse this time around, said B.V.Mehta, executive director, Solvent Extractors Association, a lobby groupof oilseed crushers.

The government meanwhile has said it may, from now on, start revising baseprices every two weeks.

"These base import prices are changed on the first and 15th of everymonth," a senior government official said.

The earlier practice was to change base prices if there was a minimum 10%rise or fall in the market price of the commodity.

"A fortnightly change or a notification stating (there is) no change ifmarket situation so warrants will curb needless speculation, rumors andavoidable manipulation of trading on this count," Mehta said.

According to industry data, India imported 1.82 million tons of crude soyoil in November 2004-to-September 2005, sharply up from 723,714 tonsimported in the year-earlier period.

The rise in crude palm oil imports was much slower during the period,rising to 2.1 million tons from 1.9 million tons. The import duty on soyoil is 45%, compared with 80% on crude palm oil.