India crude palm oil imports stall on Indonesia tax change

MUMBAI: India has virtually stopped buying crude palm oil after its biggest supplier, Indonesia, changed export taxes to make refined product more attractive, one of the country's major importers of vegetable oils said on Saturday.

"Indian refiners will not sign their own death warrant by signing import deals for crude palm oil," Atul Chaturvedi, chief executive officer of Adani Wilmar, which is also India's biggest exporter of farm goods, said at the Globoil conference here.

Indonesia, the world's biggest palm oil producer, has hiked crude palm oil export taxes and cut the duty on the refined variant, shifting the economics for India, the world's largest vegetable oils importer, to refined product.

That could be a "death blow" to domestic refiners, India's Solvent Extractors' Association (SEA) has said, and a worried food minister, K.V. Thomas, has asked the finance ministry to consider a call for hiking the import cost of refined palm oil.

India's imports are traditionally dominated by crude oils which are then refined for the domestic market. Between November 2010 and August 2011, India imported 4.3 million tonnes of crude palm oil and 819,000 tonnes of refined product.

Last year, Indonesia shipped out 6.8 million tonnes of refined palm oil products that made up 43 percent of a total of 15.6 million tonnes exported, according to industry data.

Analyst Dorab Mistry had already warned India could face a shortage of edible oils following the tax changes as Indonesia does not have the capacity to refine enough to meet India's monthly guzzling of 600,000 tonnes of palm oil.

The new tax rates make Indonesia's crude palm oil more expensive than RBD palm olein, the refined variety. Even with India imposing a 7.5 percent import tax, the final bill for a tonne of RBD palm olein is only fractionally more than imports of tax-free crude palm oil.

India's refining industry, which has a capacity of some 15 million tonnes per year, wants the government to raise the base price -- the yardstick used to calculate taxes -- and to hike import duties on refined palm oil to 16.5 percent.

Bringing prices more in line with international levels could help to protect domestic refiners from cheap imports just as India heads into its festival season, when demand rises as families celebrate with feasts focusing on rich fried foods.

India currently imports the bulk of its palm oil in crude form from Indonesia and around 90,000 tonnes a month of refined product from Malaysia.

In 2011/12, India's own oilseed supplies could rise 4.3 percent to 7.59 million tonnes after a bumper harvest, Govindbhai Patel, former head of the SEA, said.

But he added palm oil imports could still be 600,000 tonnes higher than 2010/11 as demand in the country of 1.2 billion people continues to rise.

Copyright Reuters, 2011