Hike in custom duty for refined palm oil might impact imports in future – 14 Jan 2014

On 10th January, 2014, the Cabinet Committee on Economic Affairs approved the proposal for raising the import duty on refined palm oil from 7.5% to 10%. This approval was done in order to increase the price differential between refined and crude palm oil imports with the country and strengthen the refining capacities of domestic players in India.

 

India mainly purchases palm oil from world's top two exporters of the tropical oil, Indonesia and Malaysia.

 

As such, there is significant refining capacity for palm oil with the country. However, according to Solvent Extractors Association of India, the average capacity utilisation factor for refineries in India have dropped from more than 50% a year to a round 30%, at present, due to surge in imports for refined palm oil.

 

Comprehending the import statistics, provided by Solvent Extractors Association of India, reveals that there has been double digit year-on-year growth for refined palm oil within India over the past two years, while crude imports have witnessed marginal single digit growth.

 

Import statistics for Crude and Refined Palm Oil in India
Yearly	RBD Palmolein Imports (metric tonne)	Year-on- Year growth (%)	Crude Palm Oil Imports (metric tonne)	Year-on- Year growth (%)
2012-13	2,223,265	40.95%	5,889,178	-1.74%
2011-12	1,577,356	45.82%	5,993,665	11.52%
2010-11	1,081,686	-10.86%	5,374,333	3.96%
2009-10	1,213,409	-2.15%	5,169,445	-0.34%
2008-09	1,240,018		5,187,063
Monthly Imports	RBD Palmolein Imports (metric tonne)	% Growth	Crude Palm Oil	% Growth
Nov.,2012	76,519		534,556
Nov.,2013	208,076	172%	550,663	3%
Dec.,2012	137,475		636,113
Dec.,2013	164,026	19%	691,740	9%

Source:- Solvent Extractors Association of India

 

The year-on-year growth in imports for refined palm oil has been around 40%, on an average, for the past two years. On the other hand, the import quantites for crude palm oil has remained more or less unchanged in the last two years.

 

Comparative analysis of monthly imports in the month of November for imported palm oil indicates that, the imports for refined palm oil surged by more than 100% to 2.08 lakh metric tonne in 2013, while marginal growth was seen for crude version of palm oil in the same month since last year.

 

This highlights the gravity of the situation for domestics refineries, who have been hit by huge volumes of  refined palm oil imports.

 

In order to understand the implications of this news on the market trend for refined palm oil within the India, Indianpetrochem spoke to traders in Mumbai and New Delhi.

 

A trader in New Delhi told the website, "Demand for refined palm oil is sluggish in New Delhi and there are ample stocks in the market. As such,  there is no expectation of a price hike in the immediate future due to poor economics which can backfire the demand to lower levels."

 

On the other hand, conversation with traders in Mumbai paint a completely different picture, whereby there is strong demand for refined palm oil in the financial capital. Despite this demand trend, traders don't see a price hike for refined palm oil in Mumbai as this might inevitably impact demand.

 

Over and above, the Indonesian Government has announced it plan to cut the export tax on refined palm oil in order to counteract the increase in import tariff by the Indian Government, based on press release by an Indonesian news agency. Traders and industry officials expect Indonesian and Malaysian Government to cut  export tariffs so as to maintain steady volumes of shipments for refined palm oil in India, based on the press release.

 

As a consequence of recent development in refined palm oil segment, there is lot of uncertainty over the future course of price movements within different trading hubs in India.

 

At present, refine palm oil sells at Rs. 605- 610 per 10 kg in New Delhi.