CPO Price Climbs as India Will Likely Cut Duties on Palm Oil Imports

INDIA’S plan to cut import tariff of Crude Palm Oil (CPO) from Indonesia and Malaysia has given positive sentiment to  CPO future trade on optimism that India, the world’s biggest buyer of the commodity, will increase imports.

CNBC Indonesia reported, CPO futures prices for March 2019 contract on Bursa Malaysia Derivatives, Friday (28/12/2018) climbed 0.67% to MYR 2.119 at afternoon trade. A day earlier, the price rose 0.53% to MYR 2.105 per ton.

The trade was boosted by good sentiment from India’s plan. “The duty cut will attract buying from India, but if the duty is reduced, palm prices in origin countries will rise,” said Anilkumar Bagani, research head at Sunvin Group, a Mumbai-based broker and consultant as quoted by BNN Bloomberg.

Earlier, on Monday (16/12/2018), Kontan reported that India will cut import tarif of CPO as of 1 January 2018. Head of Trade Research and Development Agency at Trade Ministry Kasan Muhri said that currently, under India-Malaysia Comprehensive Economic Cooperation Agreement (IM CECA), India has imposed highest import duty on CPO at 44% and as of 1 January 2019 it will be revised downward to maximum 40%. India will treat Indonesia all the same under ASEAN-India Free Trade Area (AIFTA) agreement so that import duty for Indonesian CPO will also be revised downward to 40%.

Using regression analysis, Kasan estimated that import tariff revision by India will impact significantly on CPO import volume from Indonesia. Every 1% duty increase in India contributes to import volume decrease from Indonesia to 3,958.7 tons. Conversely, when the duty decreases 1%, import will increase 3,958.7 tons.

In this case, import duty decrease from 44% to 40% in 2019 will increase export volume 190,020 ton valued at US$135 million. However, statistically, import duty increase in India doesn’t affect CPO import from Malaysia significantly.

Meanwhile, according to IM CECA, duty for Refined Bleached Deodorized Palm Oil (RBDPO) from Malaysia will be revised from 54% to 45% as of 1 January 2019. While for Indonesian RBDPO, the duty will be lowered from 54% to 50%. However, as of 31 December 2019, RBDPO duty in India under AIFTA agreement will be the same as IM CECA so that the import duty will be the same at 45%. ***

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