Friday 29 Mar 2024
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KUALA LUMPUR (Jan 26): RHB Investment Bank Bhd has maintained its “Underweight” on the plantation sector and said the Malaysian Palm Oil Council (MPOC) expects Indian demand for palm oil to moderate in 2022, on the back of the prevailing high prices, higher domestic production and the current import duties, which favour soybean oil.

In a note on Wednesday (Jan 26), RHB’s Hoe Lee Leng said she continues to expect this year's fundamentals of supply to improve, with a moderation in crude palm oil (CPO) prices in 2H22, while valuations will remain dampened by ESG risks.

Hoe said India's demand for palm oil still has not reached prepandemic levels, with year-to-date (YTD) -Nov 2021 import 13% below YTD-Nov 2019 while palm oil market share out of total edible oil imports is rather flattish, currently at 61%.

She said Covid-19 continues to affect demand in the hotel, restaurant and cafe (HORECA) sector as India is currently undergoing a surge in cases due to Omicron.

India’s palm oil imports to be 5% lower in 2022

Hoe explained that the main reason for this is the current high CPO prices, which is inhibiting demand.

Secondly, he said India is expected to record higher domestic oilseed production in 2022 (estimated at 10-15% growth, coming mainly from rapeseed output), which will dampen import demand.

Thirdly, the current import duty structure favours crude soybean oil (SBO) as the duty imposed on SBO is 5.5%, 275bps lower than duty imposed on CPO (8.25%), while refined PO is subjected to a higher duty of 13.75%.

She said given the negligible SBO-CPO price gap currently, it is relatively cheaper to import SBO in India.

Hoe said MPOC is positive on the Indian Government's potential to meet its long term target to increase self-reliance for edible oils as part of its national mission.

She said with a financial investment of US$1.49 billion over a period of five years, the Indian Government is targeting to raise the domestic production of CPO to 1.12 million tonnes by 2025-2026 and 2.8 million tonnes by 2029-2030.

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