India’s crude palm oil import duty cut seen as positive, timely

PETALING JAYA: MIDF Research is positive on the news that India has reduced the import duty on palm oil, as the move should make the commodity more competitive against other edible oils in India.

India on Monday cut the import duty on crude palm oil to 7.5% from 12.5%. It also reduced duties on imports of wheat and refined vegetable oils. India is the world’s largest impoter of edible oils.

“We also think that the move is timely as it should relieve consumer burden in India ahead of the Deepavali festival which will fall on Oct 29 this year. All in, we expect exports of palm oil to India to stay strong in September after a very strong pickup in August (+126% month-on-month to 428,652 tonnes) due to sustained pre-stocking activity ahead of Deepavali,” MIDF Research said in a report yesterday.

The research house believes that palm oil inventories in Malaysia should stay low at 1.55 million tonnes in September (+6% month-on-month). Key assumptions are an export decline of 15%, and production growth of 7%. Cargo surveyors’ data shows exports declined by 16% month-on-month in the first 25 days of September.

“We have increased our inventory estimate slightly (previously 1.46 million tonnes) as demand has weakened slightly as price approached RM3,000 per tonne in the spot market.”

MIDF Research maintained a positive view on the sector, adding that the crude palm oil price is expected to stay strong at the range of RM2,500 to RM3,000 a tonne in the next three months.

Yesterday, CPO futures contracts on Bursa Malaysia Derivatives closed lower. Spot month October 2016 shed RM51 to RM2,849 a tonne.

“Our top pick is KLK (Kuala Lumpur Kepong Bhd) due to its high exposure to the palm oil business and good earnings growth of 18% year-on-year to RM747 million in the nine months of FY16.

“We also like IOI Corp Bhd due to its pure exposure to palm oil business both in the upstream and downstream divisions. The company’s earnings are expected to recover in FY17 after the uplift of RSPO (Roundtable on Sustainable Palm Oil) suspension,” said MIDF Research.