India has increased taxes on overseas purchases of palm and soybean oils as a slump in global prices triggered record imports, hurting domestic oilseed growers and refiners.
Palm oil futures in Kuala Lumpur declined to a one-week low.
The duty on crude palm and soybean oils was raised to 12.5 percent from 7.5 percent, while the tariff on refined oils was increased to 20 percent from 15 percent, the Central Board of Excise and Customs said in a notification on its Web site.
While higher taxes might fuel costs for Indian consumers, they might also hamper efforts by top palm oil producers Indonesia and Malaysia to drain near-record inventories and shore up prices.
Palm oil, used in everything from chocolates to cosmetics, is in a bear market and soybean oil is trading near a nine-year low as China’s economic slowdown and a rout in crude prices hurts demand and worsens a global glut of cooking oils.
“Higher Indian taxes will dent the export book of the producers to some extent in the short term,” Kaleesuwari Intercontinental Singapore Pte head of trading and hedging strategies Gnanasekar Thiagarajan said. “The cost will be passed on to consumers. I guess demand for the world’s cheapest oil will still continue in a robust manner.”
India meets more than half its cooking oil requirements through imports with palm oil shipped from Indonesia and Malaysia and soybean oil from the US, Brazil and Argentina.
Vegetable oil purchases in the 10 months through last month surged 23 percent to 11.7 million tonnes from a year earlier, the Solvent Extractors’ Association of India said on Tuesday.
That has increased the country’s dependence on imported oils to almost 70 percent, it said.
“We’ve seen a significant drop in exports to India in August and an increase in import duty will definitely add more pressure,” Indonesian Palm Oil Association executive director Fadhil Hasan said by telephone from Jakarta.
The benchmark palm oil futures contract on Bursa Malaysia Derivatives retreated as much as 1.6 percent to 2,095 ringgit (US$499) a tonne yesterday, before trading at 2,102 ringgit by 5:40pm in Kuala Lumpur. Prices slumped to a six-year low of 1,863 ringgit on Aug. 25, while soybean oil tumbled to US$0.257 a pound on Aug. 24, the lowest since 2006.
“While the increase in duty is a welcome step, it’s not enough to help refiners and farmers,” B.V. Mehta, executive director of extractors’ association, said by telephone from Mumbai yesterday. “The difference in duties on crude and refined oils should have been higher. Imports of refined oils will continue to come in large quantities.”
While the association wanted the government to triple the tax rates to stem cheap imports after the capacity utilization at oilseed processing units fell to 30 percent, prospects of a lower domestic crop fanning price increases might have prompted the government to settle for a lower increase, Mehta said.
The country’s oilseed crop might fail for a second year, prompting the world’s biggest palm oil buyer to keep imports near a record this year and next year, researcher Oil World said on Tuesday last week.