THE BUZZ
India will impose taxes on CPO imports for the first time since 2008. CPO and soybean oil imports will be taxed at 2.5%, while import duties on refined cooking oil will be maintained at 7.5%. The South Asian country will also revise the base price on a fortnightly basis based on world prices, rather than the USD447 per tonne base price since 2006.
OUR TAKE
Not a surprise. The move is not unexpected – given that edible oil prices have fallen so much that a 2.5% import tax will hardly be felt by consumers. We also view the move as opportunistic as it will raise tax revenue for the Indian government while appearing to help farmers. In the middle of 2012, the Indian government raised the import duty for refined palm oil to 7.5%, following a surge in refined palm oil imports from Indonesia.
Indonesia to feel the crunch. The hike in edible oil import duty will likely have a stronger impact on Indonesia palm oil producers than Malaysian producers due to the former’s lion share in India’s palm oil import. In 2012, India bought 7.7m tonnes of palm oil, of which 6.1m tonnes were CPO and the rest were palm olein. Of the 7.7m tonnes, only 2.6m tonnes came from Malaysia. However, the narrower difference between refined and crude edible oil import duties should have a mitigating effect. With the imposition of the 2.5% import duty for crude edible oil, the import duty difference between refined and crude edible oil is now less than before at 7.5%.
Palm oil’s market share of import may increase. Given that the 2.5% import duty is not exclusive to palm oil, we believe it could actually help raise palm oil’s market share of India’s edible oil import. As the 2.5% tax is based on market prices and soybean oil trades at about USD300-per-tonne premium to palm oil, the import duty will be more apparent on soybean oil. Palm oil’s market share stood at 76.4% in 2012.
Maintain NEUTRAL on sector. We do not think the import duty hike will hurt the industry much as it is minimal. India is still very reliant on imports to meet its local edible oil consumption, which stands at about 19m tonnes per annum.
India will impose taxes on CPO imports for the first time since 2008. CPO and soybean oil imports will be taxed at 2.5%, while import duties on refined cooking oil will be maintained at 7.5%. The South Asian country will also revise the base price on a fortnightly basis based on world prices, rather than the USD447 per tonne base price since 2006.
OUR TAKE
Not a surprise. The move is not unexpected – given that edible oil prices have fallen so much that a 2.5% import tax will hardly be felt by consumers. We also view the move as opportunistic as it will raise tax revenue for the Indian government while appearing to help farmers. In the middle of 2012, the Indian government raised the import duty for refined palm oil to 7.5%, following a surge in refined palm oil imports from Indonesia.
Indonesia to feel the crunch. The hike in edible oil import duty will likely have a stronger impact on Indonesia palm oil producers than Malaysian producers due to the former’s lion share in India’s palm oil import. In 2012, India bought 7.7m tonnes of palm oil, of which 6.1m tonnes were CPO and the rest were palm olein. Of the 7.7m tonnes, only 2.6m tonnes came from Malaysia. However, the narrower difference between refined and crude edible oil import duties should have a mitigating effect. With the imposition of the 2.5% import duty for crude edible oil, the import duty difference between refined and crude edible oil is now less than before at 7.5%.
Palm oil’s market share of import may increase. Given that the 2.5% import duty is not exclusive to palm oil, we believe it could actually help raise palm oil’s market share of India’s edible oil import. As the 2.5% tax is based on market prices and soybean oil trades at about USD300-per-tonne premium to palm oil, the import duty will be more apparent on soybean oil. Palm oil’s market share stood at 76.4% in 2012.
Maintain NEUTRAL on sector. We do not think the import duty hike will hurt the industry much as it is minimal. India is still very reliant on imports to meet its local edible oil consumption, which stands at about 19m tonnes per annum.
Source: OSK
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