PETALING JAYA: India’s potential import duty hike on Malaysian refined palm oil will have a negative impact on the local palm oil sector, which is already affected by weak crude palm oil (CPO) prices, said PublicInvest Research.
News outlets in India recently reported that India’s Finance and Trade Ministries are considering raising the import duty on Malaysian refined palm oil from 45% to 50%, which would bring it to the same level as the import duty on Indonesian refined palm oil.
Currently, there is a 5% price differential between Malaysian and Indonesian refined palm oil, while the year-to-date average CPO price stood at RM1,980 per mt, reflecting a 17.6% year-on-year decline.
“In the event it materialises, we expect weaker palm oil exports to India in the coming months,” PublicInvest Research said in its report today.
For the first half of the year, India, which is the world’s largest palm oil importer, accounted for 28% of total Malaysian palm oil imports.
“The proposed move would result in significant losses to Malaysian palm oil exporters following the loss of preferential duty over its Indonesian counterparts. Also, this will put more pressure on Malaysian palm oil inventories in the coming months as 2H production is expected to be seasonally higher,” it said.
India had previously cut import duties on Malaysian palm oil via two agreements, a bilateral agreement between the two countries and an Asean agreement that took effect on Jan 1, 2019.
The research house noted that 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 (RBD palmolein + CPO) for the first half of 2019 rose 11.2% year-on-year to 4.58 million mt with increased orders for refined palm oil, from 16.3% to 37.8% given the narrower gap of 5% between the refined and crude palm oil import duties,” said PublicInvest Research.
Following the trade agreement, Malaysia enjoyed a staggering growth of 86.1% year-on-year to 2.5 million mt in palm oil exports to India for the same period of time.
“On the other hand, Indonesia’s palm oil exports to India fell 9.5% year-on-year to 1.84 million mt for the first five months,” it said. It maintained its “neutral” rating on the sector outlook.
