Veg oil imports rise to 2-decade high in Jan

India’s dependence on imported oil to go up to highest level of 60% this year

Vegetable oil imports reached an alarming high level in January. Imports went up 75 per cent to 1.15 million tonnes (mt) during the month, compared to last January—the highest in a single month since imports started in 1994. The previous record import was 1 mt in August 2010, according to data released from  the Solvent Extractors’ Association of India (SEA).

This has resulted in vegetable oil stocks at ports and in the pipelines reaching their highest level at 1.75 mt on February 1, compared to 1.46 mt on January 1. Imports in the first three months of the oil year (November- October) 2012-13 rose 26.6 per cent.

According to SEA, a sharp increase in refined oil imports is also worrisome. “Currently, Malaysia and Indonesia have huge palm oil stock of over 6 mt. In order to get rid of this excess stock, these palm oil producing countries are pushing aggressively their exports into India, thereby depressing local prices,” it said.

Importers also made a quick buck on news of likely increase in import duty. “In January, ahead of duty increase decision comes in, importers entered into huge import contracts, which has resulted in high imports,” said Jagdeep Grewal, vice-president of Ahmadabad-based Kunvarji Commodities. The government had increased import duty by 2.5 per cent in the third week of January.

Grewal believes higher imports at a time when the winter is ending will result in prices of premium oils like soya and mustard moderating. At present, crude palm oil is traded at around Rs 440, while soya oil is quoted Rs 300 higher. Blending of cheaper palm oil was difficult in winter as palm oil gets thick during the season. It is, however, possible during summer and hence, prices of soyaoil and mustard oil will fall.

The move by Malaysia and Indonesia to go for inward duty structure has also “disturbed India’s oil economy”, said B V Mehta, executive director of SEA. Due to lower export duty on refined oils in producing nations, imports of refined oil is rising. It used to be less than 10 per cent a few years ago, and has now reached 15-16 per cent. It’s taking away work from domestic crushing units and several branded oil companies have also started importing refined oil, pack them in their brand and sell that.

While higher imports of oil will keep domestic prices under control, which the government wants in order to manage food inflation, veg oil import bill has started putting pressure on trade deficit. Last oil year, imports were worth Rs 56,000 crore. This year, going by the trend and if duties not increased, import bill will increase sharply on account of veg oil.

Mehta said: “India was importing three per cent of its edible oil requirement two decades ago. It was 55 per cent last year and this year it is expected to go up to 60 per cent.” According to trade estimates, India consumes 17.5 mt of oils and imports will be 10.5-11 mt which will be around 60 per cent.

The Lahiri commission had recommended in 2005 that duty difference between crude oil and refined oil should be 10 per cent, which the government brought down to 7.5 per cent in 2008 and now it is only five per cent. SEA has urged the government to remove this “duty anomaly”. This will mean lesser import of refined oil and will at least leave some crushing job for domestic units apart from keeping imports under check.