Cut in India CPO duties seen benefiting Malaysia

Positive sign: CPO prices saw a small rebound in December after a rather prolonged downtrend since the beginning of 2018

Positive sign: CPO prices saw a small rebound in December after a rather prolonged downtrend since the beginning of 2018

PETALING JAYA: India has unexpectedly cut import duties on crude palm oil (CPO) from some countries, including Malaysia and Indonesia, to 40% from 44% prior to this.

Bloomberg reported that the notification by India’s Central Board of Indirect Taxes and Customs had also stated that the import duty on other palm oils from Malaysia will be reduced to 45% from 54%.

The levy on other palm oils from the Asean region that have preferential trade agreements with India (such as Indonesia, Singapore and Thailand) will be cut to 50% from 54%, it said.

The development is likely to bring cheer to the beleaguered palm oil industry which had seen CPO prices drop to near 3½-year low recently.

Analysts said that this news will likely help increase demand for CPO and palm oil products.

“Notice that this had happened right after some countries in the EU rallying against the use of palm oil in its territories and it can help the demand outlook,” an analyst said.

It was reported in December last year that the Norwegian parliament voted to implement measures and taxes to exclude palm oil-based biofuels with high deforestation risk, effective Jan 1, 2020.

CGSCIMB’s palm oil analyst Ivy Ng told StarBiz that the cut in import duties by India was a slight positive development as it will help improve palm oil competitiveness in India.

“Malaysia will have a slight advantage over its Asean peers on refined palm oil into India as the revised duties is lower for Malaysia at 45% versus other South-East Asian nations at 50%. However for CPO products, the revised import duties for Malaysia of 40% is similar with those of other Southeast Asian nations,” Ng said.

CPO prices saw a small rebound in December after a rather prolonged downtrend since the beginning of 2018.

According to chart data, the commodity had last traded at RM2,121 per tonne, off a recent December 2018 peak where it managed to rebound to RM2,198 per tonne.

CPO had seen a steep price decline of about 20% last year due to a combination of weaker fundamentals and forecasted demand.

The commodity is also the second largest contributor to the economy, with palm oil companies contributing a meaningful weightage to the FBM KLCI.

The drastic and sudden fall in CPO prices had also seen palm oil companies struggling of late.

A case in point is Genting Plantations Bhd , where in its most recent reported third quarter (ended Sept 30) it reported a net profit that shrunk to RM23.51mil from RM76.46mil a year ago, below consensus estimates.

Genting Plantations’ profit decline had been blamed on the falling CPO price despite higher fresh fruit bunch (FFB) production.

Meanwhile, FGV Holdings Bhd posted its largest ever quarterly loss of RM849.25mil in its third quarter ended Sept 2018 following forensic investigations that discovered it overpaying for the plantation asset.

The group would have still reported a pre-tax loss of RM123mil if impairment charges, mainly due to Asian Plantations Ltd (APL) of some RM788mil, was excluded.

It was reported that FGV’s poor financial performance in the recent quarter is also attributable to, among others, the drop in CPO prices.

Also, the inventory outlook is not much better either with Malaysian palm oil stocks growing at 11% from the previous month to a new record high of 3.01 million tonnes as at end-November 2018 due to weak exports and higher imports.

Moving forward, MIDF Research said that there could be some marginal increase in annual production to slightly above two million tonnes compared to a slight decline that is anticipated for 2018.

“The increase would be taken up by demand from new markets in Asean, Africa and the Middle East.

“There should also be some recovery in India’s import of CPO. This was mainly due to the lower ceiling rate on the import tariff from 44% to 40% in accordance with the Malaysian-India Comprehensive Co-operation Agreement (MICECA),” MIDF Research said.

“Coupled with the implementation of B10 and B7 biodiesel programme, we expect inventory levels to be way below the three million tonnes level towards the end of 2018,” it added.

Palm Oil , Plantations , palm oil , India , EU , CPO , crude palm oil , Ivy Ng , CIMB