THE BUZZ
India will impose taxes on CPO imports for the first time since 2008. CPO and soybean oil imports will be taxed at 2.5%, while import duties on refined cooking oil will be maintained at  7.5%.  The  South  Asian  country  will  also  revise  the  base  price  on  a  fortnightly  basis based on world prices, rather than the USD447 per tonne base price since 2006.

OUR TAKE
Not  a  surprise. The move is not unexpected - given that edible oil prices have fallen so much that a 2.5% import tax  will hardly be felt by consumers. We also view the move as opportunistic as it will raise tax revenue for the Indian government while appearing to help farmers.  In  the  middle  of  2012,  the  Indian  government  raised  the  import  duty  for  refined palm oil to 7.5%, following a surge in refined palm oil imports from Indonesia.

Indonesia to feel the crunch. The hike in edible oil import duty will likely have a stronger impact on Indonesia palm oil producers than Malaysian producers due to the former's lion share in India's palm oil import. In 2012, India bought 7.7m tonnes of palm oil, of which 6.1m  tonnes  were  CPO  and  the  rest  were  palm  olein.  Of  the  7.7m  tonnes,  only  2.6m tonnes came from Malaysia. However, the narrower difference between refined and crude edible  oil  import  duties  should  have  a  mitigating  effect.  With  the  imposition  of  the  2.5% import  duty  for  crude  edible  oil,  the  import  duty  difference  between  refined  and  crude edible oil is now less than before at 7.5%.

Palm oil's market share of import may increase. Given that the 2.5% import duty is not exclusive  to  palm  oil,  we  believe  it  could actually help raise palm oil's market share of India's edible oil import. As the 2.5% tax is based on market prices and soybean oil trades at about USD300-per-tonne premium to palm oil, the import duty will be more apparent on soybean oil. Palm oil's market share stood at 76.4% in 2012.

Maintain NEUTRAL on sector. We do not think the import duty hike will hurt the industry much  as  it  is  minimal.  India  is  still  very  reliant  on  imports  to  meet  its  local  edible  oil consumption, which stands at about 19m tonnes per annum.

Source: OSK