Workers unload oil palm fruits in a state-owned crude palm oil processing unit in North Sumatra May 29, 2012. — Reuters file picJAKARTA, July 20 — Exports of palm oil from Indonesia, the world’s biggest grower of the edible oil, are likely to drop after top consumer India effectively doubled import taxes on refined products, in a move that could also push rival Malaysia to overhaul taxes.

India, which imports more than half its annual vegetable oil consumption of about 16 million tonnes, yesterday ended a six-year old freeze on the base import price of refined palm olein and kept the crude variety free of duty.

“The window of tax-free imports for crude palm oil has not been shut and this gives refiners ample scope to ensure domestic supplies,” of refined products, said B.V. Mehta, director of industry body the Solvent Extractors’ Association of India.

India’s refined palm oil imports could fall by 50,000 to 70,000 tonnes a month, with crude filling the gap instead.

“Imports will favour crude palm oil after this change, but its impact will not be felt immediately as most of the contracts for next month have arrived,” said a Mumbai-based trader.

Before Indonesia’s duty hike, the refined grade formed about 17 per cent of India’s palm oil imports but its share has now risen to about 26 per cent, at the expense of crude, which is mostly imported from Malaysia.

The move followed lobbying from Indian refiners after Indonesia slashed export duties for processed oil last October, as it looked to kick-start its domestic downstream industries.

New Delhi’s policy response came after Indonesia’s tax cut had made Indian refineries uncompetitive, said Fadhil Hasan, director of the Indonesian Palm Oil Association.

“India’s response will be disadvantageous both for Indian consumers and Indonesian producers,” Hasan said. “The same action will be done by Malaysia.”

The Southeast Asian nation intends to reform its export duties on crude palm oil to support refiners hit by Indonesia’s export tax structure, media reports have said.

India chose to remove a freeze of the base price on refined palmolein imports from US$484 (RM1,452) per tonne to align it with current global prices, the government said today.

With market prices now around US$1,050 per tonne, the unchanged 7.5 per cent import duty will rise in dollar terms.

Malaysia and Indonesia account for about 90 per cent of global palm oil output of around 50 million tonnes.

Palm oil, the world’s most traded and consumed edible oil, is used mainly in food such as biscuits, and as biofuel.

Production in Indonesia is expected to be 23 million to 25 million tonnes this year, with India, China and Europe the main buyers.

“The change could be better for Malaysian CPO exporters because India now will buy more CPO (for refining) and Indonesia has high duty so India will look to Malaysia,” said a Singapore-based trader with a foreign commodities house.

A Reuters survey of 30 firms operating in Indonesia — from the world’s biggest listed palm oil firm Wilmar to conglomerate Unilever — shows Jakarta’s tax change has prompted plans to nearly double refining capacity to 43 million tonnes of palm oil at a cost of more than US$2.5 billion.

The Indonesian policy change nearly doubled India’s refined palm olein imports to 1.2 million tonnes for the first eight months of the current year from November, versus a year ago.

Price impact

Crude palm oil prices could rise after India’s move, while refined products in Indonesia fall, palm traders said.

“The Indonesian CPO price will eventually go higher and olein lower — so the spread could possibly narrow,” said one Jakarta trader.

The benchmark October palm oil futures contract on the Bursa Malaysia Derivatives Exchange closed today at RM3,042.

Malaysian refined palm olein for October delivery was trading at a US$36 premium to benchmark crude futures yesterday.

The current spread between refined and crude palm oils could shrink to US$15-20 in the next two to three months as Indonesia will still have the edge in selling the refined oil despite New Delhi’s attempt to raise the import cost, an Indian trader said. — Reuters