India's Import Taxes Raise to Hit Indonesia, M'sian Oil Refiners

India's move to raise taxes on its imports of refined palm oil products is likely to put a dent in the earnings of Malaysian and Indonesian refiners of the commodity, analysts said.

The decision, however, is neutral for crude palm oil (CPO) producers as India's CPO imports remain duty-free.

India, the world's biggest importer of palm oil, effectively doubled import taxes last Thursday when it ended a six-year freeze on the base import price of processed palm olein, increasing the cost of imports from Malaysia and Indonesia.

The country currently imports close to half its edible oil needs, and palm oil takes pole position with a 43 per cent share of the edible oil market.

The new tax policy, which lifts the base price of refined palm oil imports to market prices from US$484 (1,535 ringgit) per ton, is aimed at placating disgruntled refiners in India, who were doubly hit by both the low tariff and cheaper processed palm oil products from Indonesia.

Since Indonesia slashed its export taxes on refined palm oil last October, India's imports have doubled to 1.2 million tons for the first eight months of this year over 2011.

CPO futures closed lower yesterday at 2,990 ringgit ($940).

Indonesia and Malaysia, the world's top two producers of palm oil, account for 90 per cent of global output of some 50 million tons.

Indonesia supplies 74 per cent of India's palm oil requirements while Malaysia makes up the balance 26 per cent.

Malaysia exported 1.66 million tons of palm oil products, or 9 per cent of its total exports, to India last year. In the first half of the year, Malaysia shipped 1.07 million tons there, which was 82 per cent more than in the same period in 2011.

CIMB Research said in a client note that the higher tax was estimated to widen the margin advantage of palm oil refiners in India to 7.73 per cent from 3.5 per cent.

"This will allow them to compete better with the Indonesian refiners, which we estimate enjoy a profit margin of 5 per cent to 10 per cent due to the favorable export tax for refined palm products in Indonesia," it said.