Palm oil tax war expected to boost Indian imports

Palm oil tax war expected to boost Indian imports

SINGAPORE (Reuters): An export tax war, set to intensify soon between the world's two largest palm oil producers and exporters, could sharply boost Indian edible oil imports and put pressure on its government to raise import duties yet again.

As Malaysia and Indonesia battle it out to gain a larger chunk of the Asian oils market by planning liberalized tax rules on crude palm oil exports, the expected resulting fall in global prices could more than offset recent increases in duties by India to curb surging imports, traders said on Monday.

India, the world's largest edible oil importer, could see imports just surpass last crop year's record level of 4.39 million tons.

"I am sure that this kind of price war will benefit countries like India," said one Singapore trader. "If the taxes are eased, we will certainly see Indian imports rising sharply."

India imported about three million tons of edible oils in the first nine months of the oil season 1999/2000 (November-October) compared with 2.98 million tons in the same year-ago period, according to industry sources.

But since the Indian government introduced differential duties, crude palm oil imports have risen to about 53 percent of total oil imports from 31 percent in the beginning of the oil season.

"With international prices expected to fall because of plans by Malaysia and Indonesia to ease export taxes, Indian importers will just be waiting for the opportunity to grab the contracts at lower prices," said one trader.

Palm olein was offered at $290 a ton fob for nearby September shipment on Friday compared with around $740 a ton a year ago. CPO was offered at $302.50 a ton cif on Friday compared with $375 a year ago.

In June, India raised import duties on edible oils but the increase fell short of industry expectations and traders said it had little effect on imports.

The effective duty for RBD palm olein and refined oils after the increase worked out at 44 percent, and at 27.5 percent for crude oils.

The Indian industry has favored an effective import duty of 60 to 80 percent on refined oils and 38.5 percent on crude oils. Government officials have said the demand is being looked into.

"The Indian government knows that to a large extent, the recent increases in import duties have not really solved the purpose. Now with this price war on, it has to act fast if it is at all serious to check excessive imports," said another edible oil trader.

Traders said Indian imports of palm oil, slowing in recent months because of increased competition from soft oil shipments from Brazil, Argentina and the United States, could again see a revival.

"Malaysian exporters should think of measures to prevent their market share from falling in Asia due to the rising competition from soft oils," said one exporter. "They should look at a good number of contracts until India raises import duties."

Traders said the price war could benefit Indonesia more than Malaysia.

"As India is increasing its imports of crude palm oil after duty differentials, their importers are find it easier to import from Indonesia than Malaysia because of the relatively easier regulations," said one trader.