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India's palm oil demand to rise on import duty cut; markets surge

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India's palm oil demand to rise on import duty cut; markets surge

Highlights

New rule reduces effective CPO tax rate to 30.25% from 35.75%

Ruling comes a day after export tax cut from largest producer Indonesia

Will spur Indian imports in next few months: analysts

India has cut its basic import duty on crude palm oil, or CPO, to 10% from 15% effective from June 30 for a period of three months, according to a notification from India's Ministry of Finance on June 29, raising the possibility of a boost in imports in the coming months.

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Including the additional Agri Cess of 17.5% and a 10% Social Welfare Cess, the reduction will bring down the effective tax rate on CPO to 30.25% from the earlier 35.75%.

This move will bring down the retail prices of edible oils, India's Central Board of Indirect Taxes and Customs, the nodal body for all imports, said.

The new tax regime will be in force until the end of September 2021, the government said. The news comes close on the heels of a cut in export tax and levy from Indonesia -- the largest producer of palm oil.

"India will buy more palm oil in the next two months," Sandeep Bajoria, CEO of vegetable oil brokerage Sunvin group said, following the announcement.

India's palm oil imports -- which account for roughly 60% of its total vegetable oil imports -- fell from 9.4 million mt in 2019 to 7.21 million mt in 2020, and will mostly stay at those levels in 2021, industry participants had said earlier in 2021.

CPO CFR West Coast India assessments rose to $971/mt on June 29, up from $527.50/mt on May 5, 2020. The grade touched a multiyear high of $1255/mt on May 12, 2021.

"Spot and future prices on the benchmark Bursa Malaysia Derivatives exchange can rise by MR100–150 ($24.09-$36.13) tomorrow," Aditya Jeripotla, head of the edible oils and oilseeds division at commodity research company TransGraph said.

India is the world's largest buyer of vegetable oils, but in 2021 imports have been mostly hand-to-mouth as palm oil and soy oil prices have more than doubled in the last year. This, along with lockdowns due to multiple waves of COVID-19 infections, have dampened India's imports in 2020 and 2021.

Currently, growth in India's palm oil demand depends solely on crude palm oil prices in the international markets, industry watchers told S&P Global Platts.

Positive reaction

Following the announcement, palm oil futures rose by as much 3.6% on Malaysia's Bursa Malaysia Derivatives, or BMD, exchange on June 30. The benchmark September palm oil futures contract was up 108 points to MR3,661/mt ($881/mt) during morning trade on the BMD.

"BMD this morning was pricing in the much-improved CPO processing margins in India as well as the still relevant RBD olein import margins in China South," Marcello Cultrera, institutional sales manager at Phillip Futures told Platts.

On the demand side, the industry expects a surge in orders of crude palm oil from India over the coming months.

"A jump in CPO orders is likely given that it is now more competitive to soybean oil and as well as to replenish stock levels," David Ng, a trader at Malaysia-based trading firm IcebergX Sdn Bhd said.

"The Indian government's decision to lower import taxes on CPO and RBD by 8.25%-10% is inline with the demand requirements to increase subscriptions by 500,000 tons over July, August and September," Cultrera said.