India's refined palm oil imports to fall as duty change makes crude palm cheaper.

India's refined palm oil imports to fall as duty change makes crude palm cheaper

India's refined palm oil imports are likely to plunge in the next marketing year, industry officials said, as changes in trade tariffs make imports of crude palm oil cheaper, a boon for refiners previously hit by cheaper imports of rivals' goods.

Indonesian and Malaysian refiners, which ramped up capacity to cater to India's demand, are likely to come under pressure due to the decision by India, the world's biggest palm oil importer, to widen the import duty gap between refined, bleached and deodorized (RBD) palm olein and crude palm oil (CPO).

In a move designed to protect domestic farmers, India last week doubled import duty on CPO to 15 percent, and raised the levy on RBD palm olein by 10 percent to 25 percent. The move widened the gap in duties between refined and crude palm oil to 10 percent from 7.5 percent previously.

"We expect a significant shift from imports of RBD palm olein to CPO due to the hike in duty differential," said Dinesh Shahra, managing director of Ruchi Soya Industries, a leading Indian refiner. "Share of CPO in total palm imports is expected to rise to over 90 percent from 69 percent last year."

If the change is good news for Indian refiners, reactions among exporters suggest concern.

"It's not going to be easy now, there will be an impact where refiners will be getting a lot of the blow," said an upstream manager with a Malaysian plantations company, speaking on condition of anonymity.

India's imports are traditionally dominated by crude oils which are then refined for the domestic market. But moves by Indonesia and Malaysia to put higher taxes on exports of crude palm oil than refined products - an effort to promote domestic refining industries - made imports of refined products cheaper for India.

The changes allowed refined palm oil to corner 31 percent of India's total palm oil imports in 2015/16 year ended in October, up from 17.4 percent a year ago in 2016/17 and just 3.6 percent in 2006/07.

"We believe that (palm) prices are likely to be more biased towards the downside once...the increase in import duties in an important market like India work its way through," said Sunny Verghese, chief executive of Olam International Ltd..

Since the duty change, some Indian importers have already begun requesting sellers to replace refined palm shipments with CPO, said Sandeep Bajoria, chief executive of the Sunvin group, a Mumbai-based vegetable oil importer.

In the first nine months of the current marketing year started on Nov. 1, India has imported 6.74 million tonnes of palm oil, including 2.2 million tonnes of refined palm oil.

Palm oil's share in India's total edible oil imports has been falling consistently due to competition from rival soyoil and sunflower oil. In 2015/16 palm's share fell to 58 percent from 80 percent in 2012/13.

After the recent duty changes, crude soy oil now attracts 17.5 percent duty, lower than 25 percent for CPO, which could encourage imports of soyoil, dealers said.

"Regular demand will always be there but because soyoil duty is less, buyers may switch to soy," said one Kuala Lumpur trader, who declined to be named.