Rising import of refined oil makes domestic refining industry into jittery

Operating capacity reduces to 30%, duty differential needs a raise to 7.5% as recommended by Ashok Lahiri Committee for survival

Increasing share of refined oil in the overall vegetable (veg) oil import basket has hit five-year high in November due to narrowing spread between crude and refined oil in global markets.

 

Data compiled by the Solvent Extractors’ Association (SEA) showed that the share of refined oil (refined, bleached and diodized or RBD) jumped to 22% in November this year as compared to 11% in the corresponding month of previous year. Barring oil year (November – October), the contribution of RBD in the overall imports of veg oil was ranging between 11-16%. Last year, however, the share of RBD shot up to 21% on narrowing of price spread gradually.

 

 

“The spread between crude palm oil (CPO) and RBD currently stands at $10 a tonne. Considering premium, import duty levied by India and export duty by Indonesia where most of CPO getting imported, import of RBD works out to at least $30 a tonne cheaper than CPO. On the top of that, import of CPO requires refining and packing in local units which makes edible oil sell through imported CPO costly. Hence, for Indian processing industry, import of RBD makes more business sense than import of CPO,” said Pradeep Choudhry, managing director of Gemini Edibles & Fats India Pvt Ltd, a Hyderabad-based subsidiary of Ruchi Soya Industries Ltd.

 

Average price of RBD worked out to $880 as against $881 of CPO in November, resulting into the spread becoming negative by $1 a tonne. Opportunistic buyers, however, negotiate bilateral trade resulting into the spread working out to $10 a tonne. In the corresponding month previous year, however, the spread was prevailing at $69 a tonne with the price of RBD and CPO at $840 and $771 a tonne respectively.

Ratio of refined and crude oil (tonnes)
Year (Nov – Oct)	Refined oils		Crude oils		Total
November ‘13	2,08,076	22	7,19,035	78	9,27,111
November ‘12	76,519	11	5,99,715	89	6,76,234
2012-13	22,23,265	21	81,61,474	79	1,03,84,739
2011-12	15,77,356	16	84,04,110	84	99,81,466
2010-11	10,81,686	13	72,89,773	87	83,71,459
2009-10	12,13,409	14	76,09,929	86	88,23,338
2008-09	12,40,018	15	69,43,342	85	81,83,360

Source: SEA

“Increasing import of RBD has proved a ‘death knell’ proving disastrous for the domestic processing industry. Since, the government reduced duty differential between RBD and CPO at 5% by levying 2.5% import duty on the latter, the import of the former has increased significantly. Consequently, the domestic refining industry has reduced its operational capacity to less than 30% now from over 40% about six months ago,” said Atul Chaturvedi, Chief Executive Officer of Adani Wilmar Ltd, one of the largest refiners and producer of “Fortune” brand edible oil.

 

Interestingly, the government of Indonesia has promoted its refining industry by keeping the duty differential at 6% (9% on CPO and 3% on RBD) which helped them build enormous capacity over the last few years.

India’s overall veg oil imports in November surged by 35% to 944,309 tonnes this year as compared to 700371 tonnes in the corresponding month previous year.

 

“Reduction in the duty differential between CPO and RBD has led to large scale imports of Refined Palmolein in the past few months, thereby resulting in further underutilization of capacity of the refining Industry in India. Refining industry in India is bleeding and urgent intervention of the government is needed to save the industry that provides direct and indirect employment to over 5 lakh citizens of India,” said Dinesh Shahra, Founder and Managing Director, Ruchi Soya Industries Ltd.

 

According to Choudhry, import of RBD will continue to rise going forward until the government brings the duty differential level of at least 7.5% as recommended by the Ashok Lahiri Committee.