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This article first appeared in The Edge Financial Daily on July 19, 2019

Plantation sector
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According to India’s local news, the world’s largest palm oil importer is considering an import duty hike on Malaysian refined palm oil to the same level as Indonesia’s. Currently, there is a 5% price differential between Malaysian and Indonesian refined palm oil. The proposal will be negative on Malaysia’s palm oil sector, which has been in the doldrums due to the weak crude palm oil (CPO) price performance. In the event the hike materialises, we expect weaker palm oil exports to India in the coming months. Year-to-date average CPO prices stood at RM1,980 per tonne, down 17.6% year-on-year (y-o-y).

India cut import duties on palm oil with two separate agreements with Malaysia (due to the bilateral agreement between India and Malaysia) and Asean on Jan 1, 2019.

The tax on refined palm oil from Malaysia was reduced to 45% from 54%, while the duty on palm oil from India was cut to 50% from 54%, leaving a tax differential of 5%. In addition, the duty on CPO imports was lowered to a standard rate of 40% from 44%.

Following the implementation, India’s total palm oil imports (refined, bleached and deodorised [RBD] palm olein and CPO) for the first half of 2019 (1H19) rose 11.2% y-o-y to 4.58 million tonnes with increased orders for refined palm oil (up from 16.3% to 37.8%) given the narrower gap of 5% between the refined and crude palm oil import duties.

Meanwhile, Malaysia enjoyed a staggering growth of 86.1% y-o-y to 2.5 million tonnes in palm oil exports to India for the same period. On the other hand, Indonesia’s palm oil exports to India fell 9.5% y-o-y to 1.84 million tonnes for the first five months of 2019.

According to various sources, the India’s finance and trade ministries are considering to raise the import duty on Malaysia refined palm oil to 50% from 45%. India accounted for 28% of total Malaysian palm oil imports in 1H19.

The proposed move would result in significant losses to Malaysian palm oil exporters following the loss of preferential duty over its Indonesian counterparts. Also, it will put more pressure on Malaysian palm oil inventories in the coming months as production in the second half of the year is expected to be seasonally higher. — PublicInvest Research, July 18

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