Plantation - CIMB Securities 2015-09-20: India ups edible oil import duties

FIRST RESOURCES LIMITED EB5.SI GOLDEN AGRI-RESOURCES LTD E5H.SI WILMAR INTERNATIONAL LIMITED F34.SI

Plantations India ups edible oil import duties

India raised import duties by 5% to 12.5% for crude edible oils and 20% for refined edible oils.
Not a surprise, but the 5% duties hike was lower than industry’s proposed 30%.
Expect this news to have minimal impact on India’s consumption for palm oil as the duties hike can be more than offset by currently low edible oil prices.

India has raised the import duty on crude and refined edible oils by 5% in a bid to protect farmers' interest and provide a level-playing field to domestic oilseed processors. Duty on crude edible oil has been increased from 7.5% to 12.5% and on refined edible oil from 15% to 20%.

This move is not entirely a surprise to us as the players have been lobbying for higher import duty on edible oils for some time. But the increase in duties was much lower than industry’s proposals.
It was reported that The Solvents Extractors Association (SEA) has sought for an increase in crude edible oil to 25% and refined oil to 45%. Solvent Processors Association (SOPA) has asked the government to raise import duties on crude and refined edible oils by another 30%

We view this as a slight plus for CPO producers due to the smaller than expected rise in import duties. The 5% rise in local edible oil prices due to the hike can be offset by the 22% fall in CPO prices over the past year, leading to minimal price impact on consumers. We expect India’s appetite for palm oil to be unaffected by this decision.

India’s edible oils import has risen by 27% yoy from Nov 14-July 15 due to the lower selling prices for imported edible oils. This has also led to a 30% jump in stocks of edible oils at India’s ports and pipelines. Following this news, we do not discount potential short-term destocking of edible oils by traders in India in the local market. Import duties differential for crude and refined edible oils intact
Indian palm oil refiners’ spread advantage between CPO and refined products due to the import duties differential is intact at 7.7%. Thus, they remain more competitive than Malaysian and Indonesian refiners which have a lower refining spread advantage (0% for Msia and 4% for Indo) due to the less favourable export tax structure for palm oil products.

We expect this news to have relatively muted impact on CPO prices as we are of the view that the higher import duties for edible oils in India will not reduce demand for palm oil in India significantly. As such, we are sticking to our average CPO price forecast of RM2,230 per tonne for 2015.

One of our preferred picks in the sector due to its young palm oil estates and low production costs.

Golden Agri owns one refinery in India and has been expanding its downstream business to sell more palm oil directly to end-customers.

Wilmar owns palm oil refineries in Malaysia, Indonesia and India (through associates). We do not expect India’s decision to raise import duties to affect the group’s earnings.

Ivy NG Lee Fang CFA CIMB Securities | http://research.itradecimb.com/ 2015-09-20

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