Govt's tax hike to cut palm oil imports, boost soyoil, sunflower oil buying

A hike in India's import tax on palm oil could dent overseas purchases by the world's biggest edible oil importer, while making imports of soyoil and sunflower oil lucrative for the country's refiners, industry officials told Reuters.

Lower imports by such a major buyer could also weigh on prices for producers of palm oil, used in everything from soap to foodstuffs. Palm oil futures traded on the Bursa Malaysia Derivative Exchange have fallen more than 3 percent since the duty was increased on Thursday.

In a move designed to support domestic farmers, India raised the import tax on crude palm oil to 44 percent from 30 percent and lifted the tax on refined palm oil to 54 percent from 40 percent.

"Imports of soft oils are bound to increase at the cost of palm oil," Atul Chaturvedi, president of industry body Solvent Extractors Association of India, told Reuters, referring to products like soyoil and sunflower oil. "The biggest gainer could be sunflower oil."

Palm oil imports could drop by 500,000 tonnes in the 2017/18 marketing year that started on Nov. 1, said Govindbhai Patel, managing director of trading firm G.G. Patel & Nikhil Research Company. The country imported 9.3 million tonnes of palm oil in the previous marketing year.

India primarily imports palm oil from Indonesia and Malaysia, the world's top two producers.

Import duties on crude and refined soyoil remain 30 percent and 35 percent respectively. Meanwhile crude sunflower oil carries a 25 percent import tax, while refined sunflower oil is taxed at 35 percent.

India imports soyoil from Argentina and Brazil, sunflower oil from Ukraine and Argentina, and canola oil from Canada.

"Availability of soyoil is limited. So, large scale substitution (of palm oil) is not possible with soyoil, but sunflower supplies are ample. Sunflower oil will replace palm oil," said a Mumbai-based dealer with a global trading firm.

Sunflower oil imports could jump to 3 million tonnes from 2.17 million tonnes a year ago, the dealer said. He spoke on condition of anonymity as he was not authorised to speak with media.

Still, industry officials said palm oil prices could correct to become competitive amid rising output.

One Kuala Lumpur-based trader now expects palm oil prices to fall to the 2,300-2,400 ringgit a tonne range. "At 2,500 ringgit and above, palm is considered expensive," he said.

Palm oil output is expected to rise in line with seasonal trend from March onwards, putting further pressure on palm oil prices as stocks are expected to build. 

Malaysia in January had suspended export taxes on crude palm oil for a three-month period to encourage demand and support prices.