The de-freezing of import rates on crude palm oil (CPO), along with a marginal 2.5 per cent import duty levy as announced by Union Food Minister K V Thomas yesterday, is set to encourage refined oil imports into India, hitting domestic refineries. The new tariff and duty changes are yet to be notified. Many refineries themselves might import and just pack and market it but their refining capacities will not be used optimally. The share of refined oil has gradually increased in the overall import of vegetable oils over the past six years from a miniscule three per cent during the period November 2006 to October 2007 to 16 per cent in the corresponding period of 2011-12. This is a direct threat to domestic refineries, which depend largely on import of crude palm oil (CPO).
“With the negligible import levy, the differential duty between crude and refined oil has narrowed to five per cent, which indicates that processing of crude oil in domestic refineries will yield a loss. Processing of crude oil would be profitable only with a minimum differential duty of 10 per cent,” said Satyanarayan Agarwal, advisor, Central Organisation for Oil Industry & Trade.
Domestic vegetable oil refineries have built around 20 million tonnes of capacity in recent years, amid expectation of growing local consumption. Also, stagnant production from domestic sources led to growing dependence on imports, 62 per cent of the demand in 2011-12.
With the de-freezing of tariff, the industry will see a fortnightly revision in the import price of crude vegetable oil, fixed at $427 a tonne since September 2006. A couple of months earlier, the government had de-frozen the price on which the effective duty is calculated. Currently, the CPO price is $800 a tonne.
Meanwhile, operating capacity of domestic crushing and refining units has declined to 35 per cent since the government of Malaysia abolished export duty on CPO. India’s imports surged 35 per cent in December 2012, as Malaysian exporters drew down their record CPO stocks. Despite being the peak harvesting and stocking season, crushing mills stayed away from building of stocks, amid expectations of further decline in edible oil prices. The price has weakened by 40 per cent in six months due to massive stock release by the world’s two large producers, Indonesia and Malaysia. The two countries currently have a little over five million tonnes of CPO inventory.
“It would be interesting to see how the government revises the CPO tariff on January 31,” said Sushil Goenka, ex-president of the Solvent Extractors’ Association and director of Foods Fats & Fertilizers Ltd, a Chennai-based processor.
The move by the government has had no impact on the spot or futures markets, where CPO traded with a negligible gain today.
In the spot market here, it was trading at Rs 434-436 per 10 kg, while the commodity for delivery in February and March was trading lower by 0.04 per cent and 0.09 per cent at Rs 449.50 and Rs 458.50 per 10 kg on the Multi Commodity Exchange.
“There will be a marginal increase in edible oil prices with the current import levy and freeing the market. It would start rising after February, when the dust of excessive inventory in Malaysia and Indonesia settles,” said Mitesh Saiya, proprietor of Kantilal Laxmichand & Co, a Mumbai-based oil trader.
