Malaysian crude palm oil price to move higher after India tax cut

26 Nov 2020 | Rei Geyssens

Malaysian crude palm oil prices are set to move higher after the Indian government announced on Thursday to cut duties on imports of the tropical oil in a bid to stop food price inflation, market sources told Agricensus.

Import levies on crude palm oil (CPO) were slashed from 37.5% to 27.5%, the Indian Ministry of Finance announced in a note published on its website, adding that it was “in the public interest” to do so.

The change is set to come into effect Friday.

The announcement by the world’s largest vegoil importer came at the end of the Thursday trading session in Kuala Lumpur, which saw the Malaysian palm oil futures contract continuing to correct lower after reaching an eight-and-a-half-year high at the end of last week.

“This reduction will distract the correction on CPO,” Sathia Varqa, owner and co-founder at Palm Oil Analytics told Agricensus.

“[The change] will favour the local Indian refiners who will shift their gear to increase buying of CPO while Malaysia outflow of CPO will see a very sharp increase in December. December is the last month of zero export tax on crude products in Malaysia,” Varqa continued.

A broker agreed and said the move “should boost CPO prices.”

CPO prices on a CFR India basis have surged 11% since the start of the year to $895/mt after a lack of foreign labour, Covid-related movement restrictions, and heavy La Nina rainfall caused production levels to fall and stocks to shrink to a four-year low.

A second broker said the net effect of the import duty would be a drop of $93/mt, bringing CFR prices effectively back to their January level.

Yet while New Delhi slashed import duties on palm oil – which tend to be consumed by India’s Covid-hit hospital sector – it left import duties for sunoil and soyoil – which tend to be used by households – untouched despite seeing even larger price increases.

Landed prices of sunoil have surged 40% since the start of the year to $1,215/mt CIF India after drought in the Black Sea ruined sunseed crops, while soyoil prices climbed 19% over the same period to $1,048/mt CFR due to slowing crush in Argentina and high demand in the US.

The move came despite two major Indian trade bodies urging its government to not proceed with a reduction in import tariffs after rumours earlier this week, as it would hurt the local oilseed sector which India is trying to grow to cut its reliance on vegoil imports.

“SOPA [Soybean Processors Association of India] has requested the government to maintain current duty structure on edible oil imports in the interest of Indian farmers and oilseed processing industry,” SOPA said on Wednesday.

Earlier in the week, the President of India’s Solvent Extractors’ Association of India (SEA), Atul Charurvedi, said “we feel this bull run in edible oils is actually a blessing in disguise as it will enthuse the oilseed farmers and encourage them to expand acreage and productivity.”

“Lowering of import duties has the potential of giving wrong signals to Oilseed farmers,” he added.