A hike in India's import tax on palm oil could dent overseas purchases by the world's biggest edible oil importer while making imports of soy oil and sunflower oil lucrative for the country's refiners, industry officials said.
Lower imports by such a major buyer could also weigh on prices for producers of palm oil, used in everything from soap to foodstuffs. Palm oil futures traded on the Bursa Malaysia Derivative Exchange have fallen more than 3 per cent since the duty was increased on Thursday.
In a move designed to support domestic farmers, India raised the import tax on crude palm oil to 44 per cent from 30 per cent and lifted the tax on refined palm oil to 54 per cent from 40 per cent.
"Imports of soft oils are bound to increase at the cost of palm oil," Atul Chaturvedi, President of industry body Solvent Extractors Association of India told, referring to products like soy oil and sunflower oil. "The biggest gainer could be sunflower oil."
Palm oil imports could drop by 500,000 tonnes in the 2017/18 marketing year that started on November 1, said Govindbhai Patel, managing director of trading firm GG Patel & Nikhil Research Company. The country imported 9.3 million tonnes of palm oil in the previous marketing year.
India primarily imports palm oil from Indonesia and Malaysia, the world`s top two producers.
Import duties on crude and refined soy oil remain 30 per cent and 35 per cent respectively. Meanwhile, crude sunflower oil carries a 25 per cent import tax, while refined sunflower oil is taxed at 35 per cent.
India imports soy oil from Argentina and Brazil, sunflower oil from Ukraine and Argentina, and canola oil from Canada.
"Availability of soyoil is limited. So, large-scale substitution (of palm oil) is not possible with soy oil, but sunflower supplies are ample. Sunflower oil will replace palm oil," said a Mumbai-based dealer with a global trading firm.
Sunflower oil imports could jump to 3 million tonnes from 2.17 million tonnes a year ago, the dealer said. He spoke on condition of anonymity as he was not authorized to speak with media.
Still, industry officials said palm oil prices could correct to become competitive amid rising output.
One Kuala Lumpur-based trader now expects palm oil prices to fall to the 2,300-2,400 ringgit a tonne range. "At 2,500 ringgit and above, palm is considered expensive," he said.
Palm oil output is expected to rise in line with the seasonal trend from March onwards, putting further pressure on palm oil prices as stocks are expected to build. Malaysia in January had suspended export taxes on crude palm oil for a three-month period to encourage demand and support prices.