• India has raised basic import taxes on crude and refined edible oils by 20 percentage points from 14 September onwards to help protect farmers from low prices.

• The effective import duty on crude palm oil, crude soybean oil and crude sunflower oil will now be 27.5% vs. 5.5% previously. The effective import duty on refined palm oil, refined soybean oil and refined sunflower oil will now be 35.8% compared to 13.8% originally.

• This development is negative as it will reduce India's demand for palm oil. The country's inventory of edible oils at the ports and pipelines stood at 2.9mil tonnes as of 1 September 2024 vs. 3.7mil tonnes a year ago. The inventory of 2.9mil tonnes is 2 months of average monthly imports.

• More than 70% of India's vegetable oils demand are met through imports. We believe that when reserves drop to low levels, buyers would have no choice but to start importing again. In the past 2 years, the lowest level of inventory was 1.7mil tonnes in January 2022. This was before the Ukraine War. After the Ukraine War, inventory of edible oils hovered between 2.2mil and 3.8mil tonnes per month.

• In the meantime, we believe that Malaysia and Indonesia will be re-routing their palm exports to other places such as Europe, Africa or the Middle East if India's demand drops. We understand that EU is stocking up on palm oil before EUDR (EU Deforestation Regulation) will be implemented on 30 December 2024. India is the largest buyer of Malaysia's palm products, accounting for 23% of the country's exports in 2023.

• We maintain NEUTRAL on the plantation sector. We believe that weak prices of soybean oil and corn would cap upside to CPO prices. Our average 2024E CPO price assumption is RM4,000/tonne for pure Malaysian planters.

Source: AmInvest Research - 17 Sep 2024