• According to news reports, India has reduced the base import duty on CPO to 10% from 15% for three months.

• The lower base import duty will be applicable from 30 June to 30 September 2021.

• India has reduced the base import duty on CPO to provide a respite to consumers, who are suffering from high edible oil prices.

• After the reduction in the base import duty, total import duty on CPO (including cess and other types of taxes) would fall to 30.25% from 35.75%.

• We believe that this is positive for palm demand in the short term. Although Covid-19 restriction measures are expected to affect palm consumption in the HORECA sector in India, the reduction in import duty may encourage importers to stock up before the import duty normalises in October 2021. HORECA is estimated to account for 40% to 60% of palm consumption in India.

• The lower import duty is envisaged to improve the attractiveness of CPO against soybean oil and sunflower oil. Total import duty on soybean oil and sunflower oil is 38.5% each currently compared with the new rate of 30.25% for CPO.

• Still, we believe that CPO prices would be soft in 2H2021 as industry CPO production picks up. We reckon that CPO production in Indonesia would be robust in 2021F as FFB yields recover on good rainfall. In 1Q2021, the major SGXC-listed Indonesian planters recorded FFB production growth of 10% to 32% YoY.

• We remain NEUTRAL on the plantation sector.

Source: AmInvest Research - 30 Jun 2021