India refiners axe palm oil orders amid duty hike, price surge: Report

India-based refiners have cancelled 100,000 metric tonnes of palm oil purchases for delivery between October and December, Reuters reported yesterday.

Quoting five trade officials, the report stated that the decision came as New Delhi plans to raise import duties due to a rally in overseas prices, prompting them to book profits.

Refiners in the world's largest importer of palm oil cancelled the orders over the past four days, including 50,000 tonnes on Monday, after Malaysian palm oil futures surged to their highest level in two and half months.

The purchase cancellation could affect the rally in Malaysian palm oil prices as some refiners shift to soy oil.

Caught off guard

Earlier this month, India raised its basic import tax on crude and refined edible oils by 20 percentage points, raising the total import duty for crude palm oil to 27.5 percent.

“The hefty duty hike and jump in Malaysian prices caught everyone off guard,” an Indian buyer who operates a refinery said, adding he also cancelled palm oil shipments for October delivery.

“It created a situation where refiners can make more money by cancelling old purchases instead of refining and selling. Sellers are happy too, since they can now sell at higher prices to new buyers.”

On average, India imports about 750,000 tonnes of palm oil monthly and the cancellation of 100,000 tonnes represents about 13.3 percent of monthly imports.

Crude palm oil (CPO) is being offered at about US$1,080 (RM4,528) a tonne, including cost, insurance and freight (CIF), in India for October delivery, compared to around US$980 to US$1,000 a month ago, giving profit margin of US$80 to US$100 to buyers.

Profiting from cancellation

Touching on the matter, Patanjali Foods Ltd vice president Aashish Acharya said India’s east coast-based refiners are washing out on contracts by cancelling them and making a very decent profit.

Patanjali Foods is a leading importer of edible oils.

“Refiners aren’t sure about the demand for the December quarter with these higher prices.

“They’re also worried about whether the prices will hold. That’s why they’re cancelling contracts,” said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage and consultancy firm.

Price-sensitive Asian buyers traditionally rely on palm oil due to its low cost and quick shipping times. However, with the recent rise in prices, palm oil is now trading at a premium over soy oil.

A Mumbai-based dealer with a global trade house said buyers would prefer buying cheaper soybean and sunflower oil for winter months than expensive palm oil.

India’s palm oil imports are usually moderate during winter months as the tropical oil solidifies at lower temperatures.

India imports palm oil mainly from Indonesia, Malaysia and Thailand while getting soybean and sunflower oil mainly from Argentina, Brazil, Russia and Ukraine.

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