India cuts import duty on crude palm oil by 10%

Singapore — The Indian Ministry of Finance has cut the import duty on crude palm oil by 10% to 27.5%, according to a document sent to S&P Global Platts.

The duty cut will be effective from Nov. 27.

Mumbai-based Sunvin Group's founder and CEO, Sandeep Bajoria, said that "the government was concerned with the high prices locally, and called for the duty reduction to cool the market. The import margins are currently negative at $25-$30/mt, and this move will see the disparity vanish."

"I expect that Indian palm oil imports will increase by around 100,000 mt a month at the cost of soft oil imports, which could decrease by the same magnitude.

Palm prices at origin could increase by around $20/mt, while soft oil prices at origin are likely to reduce by $15-20/mt," he added.

Market sources estimate that palm oil imports to India in December could increase to around 700,000-730,000 mt, up from earlier estimates of 550,000-600,000 mt.

Market participants have welcomed the move.

"This is bullish for the market, especially in light of recent high prices in India," said one broker based in Singapore. "Palm prices have been playing catch-up with soybean oil. Though demand for palm oil was weakened by the COVID-19 related closures in the hotels, restaurants and catering sectors, palm prices have been soaring due to supply tightness in Malaysia."

"As a result, high prices in India have resulted in a narrowing of the spread between palm oil and soybean oil in India, causing demand to shift towards soybean oil. The reduction in the duty should be favorable for palm oil imports," the broker added.

A Singapore-based trader said that global high prices amid the weakening Indian rupee had also pushed the local prices higher.

"Back in 2016, when palm reached MR 3,200/mt the exchange rate was 60 INR to the dollar, but it is currently 74 INR to the dollar which has resulted in the local high prices," the trader said.

The reduction in the duty was only on palm oil, but not on soybean oil and sunflower oil, which could cause an imbalance in the market, the trader added.

Palm imports are likely to increase significantly, but prices are likely to follow with elevated demand.

"I think it could be a matter of time before the duty reduction is normalized, and the favorable effect on local prices could be negated," the source said.

At the 6 pm Singapore time, CPO CFR West Coast India offers ranged from $865/mt to $870/mt, but offers were up to $890-900/mt after the news was announced.