After the Centre reduced the basic import duty on crude palm oil (CPO) from 37.5 per cent to 27.5 per cent last month, the Malaysian government announced that it will start imposing export tax on CPO at 8 per cent with effect from January 2021.
Indonesia, a major CPO exporter, had also increased its export duty to $33 a tonne from $3 a tonne in early December. Participants in CPO sector feel that these developments may lead to a larger shipment of CPO to India during December, and it may also lead to the firming up of the price in the next quarter.
In a recent market report, Sathia Varqua of the Singapore-based firm Palm Oil Analytics said that exports to India rebounded from a lower volume in November as the country took a breather after the Diwali buying spree. A 10 per cent reduction in CPO import duty prompted greater buying from India on December shipment, rallied by the last month of no export tax from Malaysia.
The report said that overall export to India is expected to perform strongly in December surpassing the full month November volume.
Subhranil Dey, Senior Research Analyst of SMC Global Securities Ltd, told BusinessLine that the imposition of export tax by Malaysia will narrow the gap between Malaysian and Indonesian CPO prices. Major palm oil importers such as India may import more from Malaysia in December to save the export duty for significant savings, he said.
The hike in export tax by the major exporters may not lead to shift to other soft oils, said Vinod TP, Senior Analyst at Geojit Financial Services Ltd.
He told BusinessLine that there would not be much impact on the shift in demand for other oils, as palm oil is the cheapest of all other edible oils even now, and the difference of these demands has been met by imports. BV Mehta, Executive Director of Solvent Extractors’ Association (SEA) of India, stressed the need for stringent conditions in free trade agreements (FTA) such as ASEAN to protect the interests of Indian consumers and importers.
Palm oil exporting countries seem to be free to impose export duty and levy as agreements are silent on such issues. Indonesia has imposed $33 as export duty in addition to $180 as a biodiesel levy, making CPO expensive.
“Practically we are subsidising their biodiesel programme now. At the end of the day, consumers will be paying for it. The government should have a stringent condition in the FTA,” he said, adding that these countries seem to have taken advantage of the more expensive prices of other soft oils while increasing export duty on CPO. “With Malaysia imposing export duty from January 1, you can expect larger shipment before December 31,” he said, and added that the price is likely to remain firm during the next quarter.
The spot market price of CPO reached a high of ₹960.60 for a 10 kg unit on MCX on Thursday. The December future of CPO closed at ₹956.60 for a 10 kg unit and the January futures at ₹960.10 on Thursday.
On the main factors to watch in 2021 on palm pricing dynamics, Varqua said in the report that Malaysia will retain CPO export tax throughout the year as stocks remain tight at least for the first quarter of 2021. He said that Indonesia will continue on the path of higher taxes and levies in line with rising CPO prices.