India updates refined palm oil import rules, shortens import license validity

Singapore — The Indian government updated the conditions for the import of refined palm oil, reducing the validity of import licenses and demanding a pre-purchase agreement for the shipments, according to a document seen by S&P Global Platts on Monday.

The government had on January 8, 2020, changed the import policy of refined palm oil from "free" to "restricted."

The import licenses will be valid for six months rather than the earlier validity of 18 months. Authorized importers, who fail to use their quotas, will be barred from receiving licenses in the future.

Along with the pre-purchase agreement, the government will also require the import history for the past three years to supplement the import authorization applications.

Some market participants read this as an invitation to apply for import licenses, while others perceived it as a modification of the current conditions.

Market reaction

Market participants were largely not surprised. "In January, there was some initial confusion surrounding the 'restricted' status, but we broadly understood that an application to import refined palm oil products would be needed. This notice just serves to detail the conditions a bit more," said a Singapore-based trader.

After initially banning refined palm olein imports from all origins, the Indian government relented and issued import licenses for around 88,000 mt of refined palm olein from Nepal in February.

"Palm Olein is shipped into Nepal via the Indian port Budge Budge as it (Nepal) is a landlocked country," said a Malaysia-based source.

"This news is friendly for palm olein exporters and should help olein prices hold to some extent. It will also give the refiners who have been laboring under low Olein prices some respite, but the demand situation is still very weak," said a source. The source added that olein is typically used by the food and beverage industry, while rival softoils sunflower oil and soybean oil are preferred for domestic use.

"The consumer outlook in India is very bleak. People are worried about job layoffs after the lockdown and are tightening their belts. Hotels and restaurants have cut their demand projections by up to 40%. Additionally, Prime Minister Modi is addressing the nation on the 14th of April at 10 pm (IST), and I feel that an extension of the lockdown may be possible," said an India-based buyer.

However, many conceded that it is an "unwritten rule that Indonesian palm olein is preferred" as the Indian government had told buyers to refrain from Malaysian palm oil products after a diplomatic spat.

Market participants said that the decision was likely inspired by fear that supply of edible oil would be strained due to the lockdown, as most refineries are running at lower rates.

"The decision was also brought about as the government wants to ensure that prices of vegetable oil and food is kept under control. However, importers many not actually buy refined palm oil anytime soon, as the import margins are not attractive," said Anilkumar Bagani, head of Research at Mumbai-based consultancy Sunvin Group.

A Singapore-based broker also highlighted that the decision could have been taken to ensure enough supplies of edible palm oil before the holy month of Ramadan.

Another India-based buyer attributed the truncated validity of the import licenses to the need to protect the local refining industry. "In January, the decision to restrict refined palm oil products was taken to protect the local refiners. However, run rates are low now, and the workforce is crippled. Thus, I feel that this is just a temporary measure that will mitigate supply shortages, and also appease the local refiners. It is kept to six months to show that this will not be an ongoing practice or industry norm," said the source.

A Malaysia-based refiner also added that this may impact the price of palm stearin. "With this development, I expect around 250,000 mt of olein to be produced, which will also result in around 50,000 mt of stearin in the market. Stearin prices are currently at a premium to CPO due to higher demand from the oleochemical industry, and this additional supply may affect stearin prices," the source said.

In February, the Indian government had issued import licenses for 1.1 million mt of Indonesian-origin palm olein. However, most market participants reported that they were unaware of Indonesian-origin palm olein shipments headed to India at this point, citing Nepal as the preferred origin of olein imports.