India urged to double tax on refined palm oil

Indonesia, the world's top palm oil producer, has cut the export tax on refined palmolein and raised the tax on overseas sale of the crude variant to boost sales of finished products, hurting domestic refining industry in countries such as India.

Southeast Asia's biggest economy will cut the export tax cap on crude palm oil (CPO) to 22.5 percent from 25 percent previously, and on palm oil products (olein) to 13 percent from 25 percent from Oct. 1.

Exports from the archipelago of 17,000 islands are seen at 17 million tonnes in 2011, with India a top buyer.

Indonesia outpaced Malaysia to become the top palm oil producer in 2007, and is expected to produce about 23 million tonnes this year.

India, the world's top vegoil importer, buys about six million tonnes of crude palm oil from Indonesia.

"We will turn into an importer of refined palm oil if import duty and base prices are not revised upwards," said Sushil Goenka, president of the Solvent Extractors' Association of India, a trade body based in Mumbai.

"It does not need any great commercial acumen to judge that the entire quantity of CPO being imported will be replaced by import of (refined) palm oil and it will definitely strike a death blow to the Indian refining industry."

Goenka said the Indian government should raise the base price on refined oils to $1,150 per tonne from about $484 now. Indian traders pay import duties on base values irrespective of purchase prices.

Indonesia's tweaked export tax structure is already shifting the nature of India's vegoil imports. In August, palm oil imports, which form the bulk of the imports, rose by about 2 percent over the previous month.

In comparison, soyoil imports fell by 68 percent in the same month due to its widening premium over rival palm oils, dragging down the overall vegetable oil imports for August, the first monthly fall in five months, as buying slowed with the end of a major festival.

On Tuesday, Malaysian palm oil futures inched up as the weaker ringgit made the vegetable oil cheaper to process at a time when exports could start rising again ahead of the Indian festival of Diwali and a national holiday in China.

By midday, benchmark December palm oil on the Bursa Malaysia Derivatives Exchange rose 0.7 percent to 3,061 ringgit ($984) per tonne.

Copyright Reuters, 2011