India’s Edible Oil Refiners Expect To Benefit From Curbs On Palm Oil Imports

Imports contribute 90 percent of India’s consumption of palm oil used in cooking oils.

A worker holds palm oils seeds in Malaysia. (Photographer: Joshua Paul/Bloomberg)
A worker holds palm oils seeds in Malaysia. (Photographer: Joshua Paul/Bloomberg)

Edible oil refiners in India expect to benefit from restrictions on imports of refined palm oil as they have been operating at less than half the capacity.

“The oil refining industry in India is currently impacted as 40 percent of the refining capacities are being utilised,” BV Mehta, executive director at Solvent Extractors Association, told BloombergQuint. This will cause the imports of crude palm oil to increase, pushing up capacity utilisation, he said. But the extent of the benefit will also depend on the number of import licences issued, he said.

On Jan. 8, the Director General of Foreign Trade amended the import policy of refined palm oil by moving the commodity to the restricted from the free category. What that means is the government will issue licences for importing the commodity. It’s unclear how many permits will be granted.

Imports contribute to 90 percent of India’s consumption of palm oil used in cooking oils. Indonesia contributes 65 percent and Malaysia 27 percent to the world’s biggest palm oil market.

The restrictions come as India’s reduced duty on palm oil imports starting Jan. 1 to comply with international treaties was expected to aid shipments from Malaysia. The country is also locked in a diplomatic row with the Southeast Asian nation after it criticised abrogation of special status of Jammu & Kashmir and the amendments to the law that grants citizenship to most communities barring Muslims from India’s three neighbouring nations.

Also Read: $1.4 Billion of Palm Oil Is in the Crossfire as Mahathir Angers India

The share of refined palm oil remained less than 30 percent of total palm oil imports for most years. According to ICRA Ltd., between January and September last year, the gap between duty on crude and refined commodity imported from Malaysia fell to 5 percent, the ratings agency said. That more than doubled the inbound shipments of refined palm oil to 1.8 million tonnes from the Southeast Asian nation from 0.7 million tonnes a year earlier, increasing its share in imports to India, it said.

Restriction on imports of refined palm oil will safeguard margins of domestic refiners while also improving their capacity utilisation from the current 30-40 percent, said ICRA.

Large Indian refiners of edible oil include Adani Wilmar Ltd., Emami Agrotech Ltd. and Ruchi Soya Industries Ltd.—that was recently acquired by Patanjali Ayurved Ltd. through insolvency resolution.

Reduced Protection For Indian Firms

Both Indonesia and Malaysia have higher export taxes on crude palm oil and lower levies on the refined variety.

On Dec. 31, India’s finance ministry reduced the import duty on refined palm oil to 45 percent from 50 percent, and to 37.5 percent from 40 percent for the crude variety as the final revision under the Asean agreement and the Malaysia-India Comprehensive Economic Cooperation Agreement.

According to ICRA, the net duty protection from imports would have fallen to 1.7 percent from 10 percent for shipments from Malaysia and to 4 percent from 7 percent for Indonesia. That would have also aided imports from Malaysia.

Also Read: Palm Oil’s Price Switch Won’t Save the Orangutan

Moreover, reduced duty on crude palm oil would result in an indirect impact on the prices of oils extracted from locally grown crops, said ICRA, adding that it could reduce the overall oilseed acreage in the long term.

Also Read: Eye-Watering Palm Oil Price Sees India Turn to Sunflower Oil

The offsetting factor, however, is the recent surge in palm oil prices. That, according to the rating agency, elevated the realisations of all domestic edible oils by 15-30 percent, so the net impact could be minimal or neutral.