Duty structure changes in Palm oil come at a moment of opportunity

Changes in duty structures made by both Indonesia and India this week should provide a boost to demand in Palmyra, and have arrived “at the right moment,” easing concerns about oversupply in the second half of the year, according to market participants.

The Indonesian government has announced a reduction in the ceiling rate on its crude palm oil export tax to $ 80 / mt from June 2.

The next day the Government of India reduced the import duty on CPO from 35.75%to 30.25% and lifted restrictions on imports of refined palm oil and oil, which had been in force since January 2020.

Although the Indonesian export tax and duty reduction were largely priced by the market, most participants were surprised by the Indian government’s decision because the duty would remain unchanged in the shortest possible time.

“The market leader was decisive, with many believing that stocks would begin to build up [in Malaysia] due to weak demand amid high production. However, this decision will ease some supply overhang concerns,” one manufacturer told S&P Global Plots.

Following the changes, India’s CPO imports are expected to increase by about 150,000 MT per month in the third quarter.

“Imports from July to September should be 850,000 metric tonnes per month compared to the usual 700,000 metric tonnes. The impact of the reduction in duty will be an additional 400,000 metric to 500,000 metric tonnes per annum for the CPO, while imports in June will be 500,000 metric tonnes,” said Sundin. Sandeep Pajoria said.

“Import speeds should be healthy from the first half of September and the second half will be slow as oil is expected to land in India by September 30,” he added.

A Malaysian manufacturer realized that India’s August imports could be as high as 900,000 metric tonnes. “Buyers want to take advantage of the low price. We do not know what will happen in October. It is logical that they should try to ship as much as they can before the import tax is reinstated,” the manufacturer said.

A trader from India said he could raise the import tax again in October because the time was similar to the harvest of the kharif crop, which was similar to the tax hike in February before the rabi crop. “The government will try to ensure that local farmers are also protected, so international prices should not be too low,” the trader said.

While international palm oil prices determine the demand for palm oil, other factors such as food security, competitive cooking oil prices, import margins, and domestic production also come into play.

Sunwin Pajoria highlighted that higher prices as a result of additional demand could destroy the competitiveness of palm oil compared to soybean oil. “The spread between palm oil and soybean oil should be at least $ 150 / mt to increase imports by 500,000 metric tonnes during the concession period. This spread will support Indian demand,” he said.

Meanwhile, ship sizes may also be affected by India’s epidemic, with ship owners reluctant to call Indian ports.

“Some Malaysian and Indonesian ports have segregated requirements and group transfer restrictions in Singapore for ships calling to India,” said a Singapore-based shipping broker. As such, some devices are made in the mid-30s / mt for WCI.

“The increase in inventory is not based on fundamentals, and bunker prices have also been significantly appreciated. Although inventory in July was relatively sluggish, inventory did not retreat. Palmyra is not the best-paying inventory, so charters will have to pay,” the broker said.

Refined products are surprises

Despite the relief of tax cuts on crude palm oil, market participants were upset by the decision to resume imports of refined palm oil.

“Refiners were already facing weak demand and some would have to reduce their run rates if the country was flooded with more oil. I firmly believe that oil imports are not good for this country and its investment in refining infrastructure. This should be appealed,” said a trader from India.

With a more competitively priced CPO, refining margins can be taken over by local purifiers, but now they are exposed to more competition.

“We hope that refining sales will improve. I am very optimistic about the opening of the hotel, restaurants, and catering sector (Horeka),” the trader said. Not only the global oilseed crisis but also the demand for biofuels has pushed up cooking oil prices. ”

“The decision taken by the Indian and Indonesian governments to adjust the taxes, especially at this time, is very welcome and too late,” the trader said.

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