India Likely To Face Shortfall In Refined Palm Oil

According to a leading vegetable oil analyst, Dorab Mistry, India may face a shortage in refined palm oil imports in the next three months as leading supplier Indonesia doesn't have the capacity to meet a likely surge in demand following tax cuts on its product. Although, Indonesia will expand its refining capacity in future, but it will take at least two years to meet India's demand.

Indonesia, the world's biggest palm oil producer and exporter, has reduced its export tax on refined, bleached and deodorized palm olein in bulk to 8% from 15% and raised the duty on crude palm oil to 6.5% from 15% effective Sept. 15 to encourage domestic refining.

India is the world's largest importer of vegetable oil and imports mainly from Indonesia and Malaysia.The country imports about 6 million tons of palm oil. With Indonesia slashing the export tax on refined edible oil, Indian industry is apprehensive that this may lead to a surge in imports, affecting Indian refiners. India has an edible oil refining capacity of 20 million metric tons a year and imports almost 80% of its edible oil requirement as crude oil. Higher imports of refined products will hurt local refiners.

Earlier last week, India's edible oil industry sought a hike in the import tax on refined palm oil to 16.5% in a bid to control imports from Indonesia and to encourage local oilseeds crushing.India's food ministry is backing local refiners' demand for a higher import tax on refined edible oil to prevent cheap foreign supplies from flooding the market.

Food Minister K.V. Thomas has said that the ministry has put up the matter before the ministries of finance as well as trade for taking a holistic view.

The ministry has also favored the industry's demand for increasing the base value on which import tax is calculated. The base value is currently $484/ton for refined palm oil, much lower than the market price of about $1,200/ton.

Dorab Mistry has further said that if the Indian government raises the base tariff value of refined palm oil to the current price level, it may be viable for importers to continue crude palm oil imports.