India May Hike Refined Palm Oil Import Duties .

NEW DELHI/KUALA LUMPUR: India is considering an industry request to raise import duties on processed palm oil, government and industry sources said, after Indonesia lowered its export taxes on the product -- a move seen as dealing "a death blow" to Indian refineries.

India, the No 1 buyer of vegetable oils, has already begun importing more of refined, bleached and deodorised (RBD) palm olein from Indonesia ahead of Diwali, potentially leaving refining capacity idle.

With Indonesia, the biggest producer, now more than halving export taxes of refined palm oils in mid-September, Indian industry officials are pushing New Delhi to raise the base price, or tariff value, for refined palm oils.

"The domestic refining industry has been demanding $1,100-$1,200 per tonne tariff value on RBD palmolein," said a government source on Thursday who did not want to be named due to sensitivity of the issue.

The finance ministry did not comment on the issue as it usually refrains from making public statements to avoid speculation.

Importers are currently taxed 7.7 per cent duties based on the tariff value set at $484 a tonne, irrespective of purchase price -- a low price to pay and bring in processed edible oil cargoes at time when food inflation is still high.

Indonesia made minor cuts to export taxes of crude palm oil that forms the bulk of India's imports. But even with crude palm oil's import tax-free status in India, traders are shifting to refined products.

From last week, Indian traders have snapped up 50,000 tonnes of RBD palm olein for delivery in October to coincide with higher food demand during the Diwali festival.

Benchmark palm oil on the Bursa Malaysia Derivatives dropped 1.8 per cent on Thursday on concerns over the bleak global economic outlook although traders said festival demand could limit losses.

Indian domestic prices were also down. At 0727 GMT the most-active soyoil for October delivery on India's National Commodity and Derivatives Exchange was 0.6 per cent lower at 649 rupees ($13.429).

"The contract may fall to 620 rupees if cheaper imports will remain there for next few more weeks," said Vimla Reddy, an analyst with Karvy Comtrade.

India buys about 6 million tonnes of crude palm oil every year from Indonesia for its refiners to process into cooking oil and other food products.

Refining capacity in the country stands at 15 million tonnes and could turn idle if more refined palm oil is shipped in, traders estimate.

Food Minister KV Thomas this week expressed concern about Indonesia's move, which the head of Indian's leading vegetable oils industry association has said could be "a death blow" to the refining industry.

India's food ministry has since passed on the industry's request for higher tariff values to the finance ministry, the sources said.

Finance minister, Pranab Mukherjee, will take a final decision bearing in mind high food-driven inflation has forced the central bank to hike rates 12 times in the last 18 months.

"If the food ministry recommends any action on the demands of the domestic industry, we will inevitably examine it," a finance ministry official said.

The edible oils weight in India's wholesale price is 3.04 per cent, and the wholesale edible prices have moved up by 3.65 per cent since March 2011 until August.

The wholesale prices of edible oils were up 3.5 per cent in August from a year ago period. The WPI rose 9.78 per cent in August and is a major concern for policy makers.

"There is still plenty of room to move," said a palm oil analyst in Singapore.

"Raising the tariff value for refined palm oils will make it expensive but the inflation aspect can be mostly avoided as India will shift back to crude palm oil and still save its refiners," she added.

Source : economictimes.indiatimes.com