India Ratings & Research maintains negative outlook for edible oil sector

In May 2013, proportion of refined palm oil as proportion of overall palm imports surged to an all-time high of 42% from earlier range of 12-16%

India Ratings & Research, a ratings agency maintains a negative outlook on the Indian edible oil sector for for the second half of this year as the reduction in spreads between imported refined palm oil and crude palm oil (CPO) which is domestically refined has made refining unviable and boosted trading activities.

"The spread has contracted to 1-2% since October 2012 from around 9-10% earlier due to a change in palm oil duty structure in exporting countries and imposition of import duty on CPO," India Ratings & Research said in the report.

Refiners capacity utilisation and volumes is expected to come down due to increased competition from smaller traders with efficient cost structures and will dent operating profitability and return on capital employed for most edible oil companies.

In May 2013, the proportion of refined palm oil as proportion of overall palm imports surged to an all-time high of 42% from the earlier range of 12-16%. Domestic refiners are now operating at 30-35% capacity utilisation levels as against around 50% earlier. Players with capex plans on the anvil may choose to forgo them for the time being. On the other hand, capacities being commissioned in the interim may be underutilised.

"The agency expects the proposal to hike an import duty to 12.5% (against the existing 7.7%) on landed cost of imported refined palm oil would once again encourage refining activities in the country. The proposal is currently under consideration by the government," India Ratings & research said in the report.