• Bloomberg reported that India has raised the import duty on crude palm oil from 15% to 30% and refined palm oil from 25% to 40%.
• This is not a surprise as there have been news reports alluding to a hike in import duties. Indian refiners have been lobbying for an increase in import duties on vegetable oils as they are struggling to compete with imports, which are cheaper.

• Also, the hike in import duty is the second one this year. In August 2017, India raised the import duty on crude palm oil from 7.5% to 15% and refined palm oil from 15% to 25%.

• There are a few issues here. First, the hike in import duties would affect the demand for palm oil. The silver lining is that the new import duty on soybean of 45% (vs. 30% previously) is higher than crude palm oil's 30%. Import duty crude soybean oil is 30% (vs. 17.5% previously). Hence, Indian importers may switch from soybean to palm oil in the future.

• India's imports of Malaysia's palm oil fell by 27.6% YoY in 10M2017. In spite of the fall in demand, India was still the largest buyer of Malaysia's palm oil, accounting for 13.2% of exports in 10M2017.

• Interestingly, India's imports of palm oil (refined palm olein and crude palm oil) expanded by 9.9% YoY during the November 2016 to October 2017 period. This implies that India is buying more palm oil from other countries such as Indonesia instead of Malaysia. There is a possibility that Malaysia's market share of India's palm imports is declining.

• Second, Indian importers may be switching from palm oil in crude form instead of refined in the future. Although the tax differential between crude and refined palm oil is unchanged at 10 percentage points, the import duty on refined palm oil of 40% is higher than crude palm oil's 30%.

• From November 2016 to October 2017, refined palm olein accounted for 31.2% of India's palm exports while crude palm oil accounted for the balance 68.8%. The proportion was unchanged compared with the same period last year.

• In spite of the negative development, we believe that India would have to continue importing vegetable oils if domestic production is insufficient and there are not enough inventories. Presently, we reckon that there are ample inventories as reflected in the stockpiles of edible oils of 2.344mil tonnes as at 1 November 2017 compared with 1.935mil tonnes as at 1 November 2016. Inventories of edible oils stood at 2.589mil tonnes as at 1 October 2017.

• Maintain NEUTRAL on the plantation sector. We have BUYs on Genting Plantations with a fair value of RM11.50/share and TSH Resources with a fair value of RM1.90/share.

Source: AmInvest Research - 20 Nov 2017