PETALING JAYA: The Malaysian Palm Oil Council (MPOC) expects palm oil imports from India to be 5% lower at 8.2 million tonnes this year due to the high crude palm oil (CPO) prices and potentially higher domestic oilseeds production.
India’s current edible oils import duty structure also favours crude soybean oil, which is imposed with a lower import duty of 5.5% compared with 8.25% for CPO and 13.75% for refined palm oil.
The high CPO prices also inhibits demand from India, which is one of the world’s largest edible oil importers that is highly price-sensitive.
These are some of the key takeaways from a recent meeting between RHB Research and MPOC regional director Bhavna Shah.
MPOC also highlighted that India’s demand for palm oil has not reached pre-pandemic levels. The share of palm oil out of total edible oil imports is rather flattish currently at 61%, the research house said in its latest report.
Furthermore, the Covid-19 pandemic continues to affect demand in the hotels, restaurants and cafes (Horeca) sector as India is currently undergoing a surge in cases due to the Omicron variant.
“While India is not in a full lockdown mode, there are restrictions in place in certain states in the red zones, including a ban on in-restaurant dining, 50% capacity workforce and the shutdown of schools and gyms.
“As palm oil is most commonly used in the Horeca and industrial sectors, these restrictions will have an impact on demand going forward.
“We understand that Indian buyers are now buying palm oil on a ‘hand-to-mouth’ basis given the high prices currently,” it added.
Inflation in India is also rising with the soaring edible oil prices.
MPOC noted that imposing import duties on edible oils is the Indian government’s main tool to reduce inflationary pressures, and changes to the rates have been occurring more regularly over the last year.
RHB Research added that MPOC is also positive on India’s long term plan to increase self-reliance for edible oils.
With a financial investment of US$1.49bil (RM6.2bil) over a period of five years, India is targeting to raise the domestic production of CPO to 1.12 million tonnes by 2025-2026 and 2.8 million tonnes by 2029-2030.
Meanwhile, RHB Research said: “We continue to expect this year’s fundamentals of supply to improve, with a moderation in CPO prices in the second half of the year while valuations will remain dampened by the environmental, social and governance (ESG) risks.”
The research house also maintained an underweight call on the sector, premised on the expectation that the ESG discounts are here to stay, dampening investors’ appetite for plantation stocks.