Palm oil prices up, negate import duty cut

A J Vinayak Mangaluru | Updated on July 01, 2021

Malaysia crude palm oil gains 1.3%; Centre eases import of other palm oils

Palm oil prices rose in key producing nations Malaysia and Indonesia on Wednesday, negating the impact of the import duty cut imposed by India to bring down edible oil prices and tame inflation.

The Centre took additional steps, interpreted as further measures to tackle inflation, on Wednesday by removing imports of refined, bleached and deodorised (RBD) palm oil, RBD palmolein and other palm oils from the restricted list and allowed their shipments into the country freely.

According to the Solvent Extractors Association of India (SEA), palm oil prices increased by $40-45 (₹2,975-3,350) a tonne in the producing countries compared with the $55-60 (₹4,100-4,600) cut in Customs duty through a five percentage points reduction announced Tuesday night. The duty cut is effective from Wednesday.

Revenue lost?

“However, this reduction in import duty has been negated by the rise in palm oil prices today in Malaysia and Indonesia. In other words, the Government may end up losing revenue and consumers may not benefit,” said Atul Chaturvedi, SEA President.

On Bursa Malaysia Derivatives Exchange, palm oil futures closed near a three-week high of 3,597 ringgit (₹64,400) a tonne, up 1.24 per cent from Tuesday’s close. During the day, prices increased as high as 3.55 per cent.

On Tuesday, the Centre notified a reduction in crude palm oil import duty to 10 per cent from 15 per cent for three months to September 30. Wednesday’s decision to open up imports of RBD palmolein and palm oil will be valid till the year-end.

Effective cut

SEA and Indian Vegetable Oil Producers Association (IVPA) said the effective import duty on crude palm oil would be 30.25 per cent from the earlier 35.75 per cent. Similarly, the effective duty on other palm oils, including RBD palm oil and palmolein, would be 41.25 per cent. For RBD palm oil, the effective duty cut is 18.15 per cent and for palmolein, it is 8.25 per cent, SEA said.

Suggesting that the Centre had waited for the farmers to complete sowing of Kharif oilseeds, Chaturvedi said that the duty cut decision was “a bit delayed” as global prices of palm oil had dropped 15-20 per cent.

Reopening floodgates

IVPA President Sudhakar Desai termed the move to free imports of RBD palm oil and palmolein as “detrimental to the survival of Indian industry”.

“Indonesia has $115 (₹8,550) a tonne export advantage for export of olein compared to crude palm oil. Imports of cheaper refined olein imports, especially from Indonesia, will affect the industry badly,” he said, fearing that it would reopen floodgates for olein imports from Nepal and other South Asian countries at zero duty. The Centre’s measures follow a steep hike in cooking oil prices in the country. Prices of various edible oils are up by an average 50 per cent due to tight supplies arising out of the Covid pandemic.

Production of palm oil, in particular, has been hit by non-availability of migrant workers in Malaysia plantations. It had resulted in crude palm oil prices surging to 4,506 ringgits (₹80,700) a tonne last month. In fact, the rise in palm oils has been 60.5-68 per cent compared with 59 per cent for soya oil and 49 per cent for sunflower oil.

The duty cut will likely ease prices at the consumers’ end as they are currently paying ₹60 a taxes for buying palm oil worth ₹100. Another favourable development for the consumers is Indonesia’s decision to cut its crude palm oil export levies from a ceiling of $225 (₹16,725) a tonne to $175 (₹13,000) a tonne from July 2.

IVPA’s Desai told BusinessLine last month that taxes on palm oil from Indonesia alone was nearly $400 (₹29,725) a tonne.

India’s decision on palm oil imports had the Malaysian Palm Oil Board cheering it as a “boon” for its industry, Malaysian wire agency Bernama reported. The agency quoted Singapore-based Palm Oil Analytics owner Sathia Varqa as saying that Malaysia’s share in India’s crude palm oil imports would accelerate this year after the 12-fold rise during January-May. It would be at the cost of Indonesia, whose share has begun to drop.

According to SEA, palm oil imports increased 92 per cent in May to 7.86 lakh tonnes. Malaysia’s crude palm oil exports this month are estimated by cargo surveyors between 15.2 and 15.5 lakh tonnes, up nearly eight per cent over May.

Published on June 30, 2021

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