HYDERABAD: Increased import duties are likely to see Indian edible oil refining industry up capacity utilisations by at least a third, forcing the industry to crush more domestic oil seeds, which saw higher production this year, and prompt domestic players import more crude oil stocks and refine it locally.
Industry representatives and sector analysts say that the shift towards crushing of domestic oil seeds and improved capacity utilisations after several years is expected over the next two to three quarters, thus giving a fillip to profit margins of the domestic sector.
Care Ratings said India is the world's largest importer of edible oils and imports 67% of its requirements from Indonesia and Malaysia. However, over the years the industry had seen financial stress due to droughts, rising production costs and cheaper oil imports, forcing several small firms to shut shop.
India consumes nearly 22 million tonnes of edible oil. Domestic production is about 7 million tonnes, the rest is imported.
“We are currently refining nearly 6 lakh tonnes of edible oil and with the increase in duty differential between crude and refined palm oil. It will go up by another 22.5 lakh tonnes. This will help increase the refining industry's capacity utilisation, which fell to 3040% due to a higher import of refined edible oil,“ said Atul Chaturvedi, president, Solvent Extractors' Association.
The government recently raised the import duty on crude palm oil to 15% from 7.5% and on refined palm oil to 25% from 15%. While palm oil accounts for highest share of imports, taxes were also increased on other major oil imports like soya and sunflower. “Companies weren't making good margins earlier when the duty differential between imported crude and refined palm oil was low as the refineries turned into packers instead of carrying out refining operation,“ said Arindam Saha, associate director, Care Ratings.
“However, with the increase in duty differential of 10%, capacity utilisation of refineries is likely to go up and expect improvement of industry profitability margins by around 1%,”, he said, adding that the edible oil industry works on very thin margins.
“With good production in Malaysia and Indonesia of palm oil and the effect on tax increase gradually panning out, the increase in capacities can only happen in the next two to three quarters,” said Vinod TP, research analyst, Geofin Comtrade.
Chaturvedi of Solvent Extractors’ Association to expects the impact to last for a few quarters.
Source: economictimes.indiatimes.com