This article first appeared in The Edge Financial Daily on January 3, 2019
Agribusiness sector
Maintain neutral: India has cut the import taxes on crude and refined palm oil from Southeast Asian countries after a request from suppliers, a government notification said. The duty on crude palm oil (CPO) was lowered to 40% from 44%, while the tax on refined palm oil (RPO) was cut to 50% from 54%, according to the notification issued on Monday. The Indian government in a separate notice said Malaysian shipments of RPO will be taxed at 45% versus 54% before. The revised duties took effect on Tuesday.
This is a positive development for palm oil as it would narrow the import duty differential between palm oil and other competing edible oils such as soybean oil and sunflower oil. However, the revision in import duties is not a major surprise as Malaysia’s Primary Industries Minister Teresa Kok has indicated that he Comprehensive Economic Cooperation Agreement entered into between India and Malaysia provides for import duties on CPO and RPO to be reduced to 40% and 45% respectively, effective Tuesday.
We estimate that with the reduction in import duties on RPO of Malaysian origin, the effective import duties on Malaysian RPO in India will be on par with those of other competing edible oils. We expect this to raise India’s demand for RPO from Malaysia at the expense of other edible oils as well as palm oil from other origins due to its more competitive pricing. CPO currently trades at a discount of around US$212 (RM877.68) per tonne against soybean oil. India was the largest importer of palm oil in 2017, accounting for 19% of total palm oil imports. — CSGCIMB Research, Jan 2