India’s vegoil industry participants seek import tax break reversal amid price crash

India’s vegetable oil industry representatives asked the government to overturn a recently announced tax holiday on the import of crude soybean oil and crude sunflower oil in a meeting on June 22, as the meltdown of international palm oil prices could discourage oilseed farmers ahead of the soybean sowing season.

As falling vegetable oil prices would ease the inflationary pressure on end-consumers, “the need of the hour is to ensure markets don’t slide further as it will dishearten our oilseed farmers,” the Solvent Extractors’ Association of India, or SEA, said in a press release June 23 following the meeting.

India is the largest buyer of vegetable oils and imports about 60% of its annual consumption of 23 million-24 million mt. On May 24, New Delhi announced a Tariff Rate Quota, or TRQ, that allows for the annual import of two million mt of crude soybean oil and crude sunflower oil each, completely duty free.

The most active September crude palm oil contract on the keenly watched Bursa Malaysia Derivatives, or BMD, exchange has fallen more than 28% in June after larger rival Indonesia restarted exports after a three week ban on all palm oil exports through May.

The price of crude palm oil crashed to about $1,385/mt, down by $625/mt from $2,010/mt in March, while soybean oil prices fell by $384/mt and sunflower oil by $285/mt, SEA said.

Price crash worries importers

Indian importers are also worried about defaults due to the sudden fall in prices. Smaller buyers who place orders with larger importers may simply not pick up the oil or ask for averaging, Manoj Jha, managing partner at Unidus Corp, an India-based importer of palm oil products told S&P Global Commodity Insights.

Those who had commitments at MR6000/mt ($1,361.84) price level at the BMD are all defaulting or deferring orders in the last two days, with four major buyers also indicating concern at current price levels, a source told S&P Global.

A sudden fall in international prices eats into margins of importers as they will then have to sell the costly stock at lower rates further upstream to processors and wholesalers.

This will be a huge blow to stockists as they will now have to sell it on lower rates since crude palm oil futures on the BMD have fallen by over 20% in the last couple of weeks, a source said.

While I have not heard of any serious defaults or deferrals yet, if the markets declined from here things could get worse, Anil Kumar Bagani, head of research at Sunvin Group said.

The price of crude palm oil CFR West Coast India was pegged at $1,315/mt on June 23, down 21% from $1,670/mt at the start of the month, according to Platts assessments from S&P Global.
Source: Platts