KUALA LUMPUR (June 3): The Indian government’s decision to cut import tax on crude edible oils on May 31 is likely to negatively impact Malaysian planters who have exposure to palm oil refining operations in Indonesian, CIMB Securities said.
In a note on Tuesday, the firm said this tax cut effectively widened the import duty gap between crude palm oil (CPO) and refined palm oil.
“On the downside, the wider duty differential poses a challenge to Malaysian and Indonesian palm oil refiners, as it erodes their competitiveness versus Indian refiners. This may also intensify competition for feedstock (CPO).
“Additionally, Indian oilseed farmers could be negatively affected, as increased imports may put downward pressure on local edible oil and oilseed prices,” said the research firm.
This policy change in India might prompt a shift in demand towards crude palm oil, potentially raising India’s intake of CPO and boosting Indonesia’s refining industry.
According to CIMB Securities, among Malaysian planters under its coverage, Kuala Lumpur Kepong Bhd (KL:KLK) and SD Guthrie Bhd(KL:SDG) have exposure to palm oil refining operations in Indonesia.
While the move could benefit Indian consumers through lower edible oil prices, it creates a less favourable environment for Indonesian refiners, which currently supply 86% of India’s refined, bleached, and deodorised (RBD) palm olein.
India has halved the basic import duty on crude edible oils to 10%, aimed at curbing food inflation and supporting the domestic refining industry. The reduction applies to CPO, crude soybean oil, and crude sunflower oil. Edible oils are also subject to a 5% agriculture infrastructure and development cess, and a 10% social welfare surcharge.
The effective tax rate is now at 16.5%, down from 27.5% previously. Import duties on refined edible oils stand at 35.75%, to encourage higher imports of crude edible oils over refined oils, to boost Indian refinery utilisation rates.
The previous duty structure, which imposed a higher import duty on refined palm oil, incentivised Indian refiners to import CPO for domestic processing.
The new policy, however, brings the import duties on crude and refined palm oil wider, allowing Indian buyers to import crude palm oil at a more competitive price.
This could lead to increased imports of crude palm oil by India, potentially impacting the profitability and operational capacity of Indonesian refiners who have invested heavily in their domestic refining capabilities.
CIMB Securities has kept its CPO price forecast for 2025 at RM4,200 per tonne. However, in the first four months of 2025, the average CPO price was higher at RM4,609 per tonne.
Amendments were made to the article for accuracy.