Agribusiness - CGS-CIMB Research 2021-02-02: India Raises Effective Import Duties For CPO

Agribusiness - CGS-CIMB Research | SGinvestors.io WILMAR INTERNATIONAL LIMITED (SGX:F34) FIRST RESOURCES LIMITED (SGX:EB5) GOLDEN AGRI-RESOURCES LTD (SGX:E5H)

Agribusiness - India Raises Effective Import Duties For CPO

  • India has raised the effective import duty on CPO by 5.5% points to 35.75%, effective 2 Feb 2021, after revising the import duties and imposing new cess.
  • This is negative as it will reduce CPO price competitiveness against other edible oils in India and higher duties will result in higher cooking oil price.
  • We expect the change to be slightly negative for CPO demand in the near-term (negative for upstream palm oil producers) and Indian palm oil refiners.



India raises effective import duty on crude palm oil

  • India cut the import duty on crude palm oil from 27.5% to 15%, effective 2 Feb 2021 (Monday) in its 2021 Budget. It also lowered the import duty for crude soybean oil and crude sunflower oil from 35% to 15%. However, the government announced the imposition of the new 17.5% agriculture infrastructure and development (AID) cess on palm oil and 20% AID cess on soybean oil and sunflower oil.
  • On an overall basis, we estimate the revision will result in the effective import duty for CPO rising to 35.75% from 30.25%. However, there is no change to the effective import duty for crude soybean oil and crude sunflower oil which remains at 38.5%.
  • To put things in perspective, the reference CPO price used to calculate the import duties in India was set at US$1,049 per tonne with effect from 15 Jan 2021. The increase in effective import duties implies additional tax of around US$57.7 per tonne (RM233 per tonne), which is likely to be passed on to consumers.


The cut will reduce CPO price competitiveness in India

  • This is a negative development for palm oil as the revised effective import duty for crude palm oil of 35.75% is 5.5%-pts higher and this will result in higher palm oil price for consumers in India. We estimate the revision will reduce CPO advantage in terms of duty gap against other competing edible oils like crude soybean oil, from 8.25%-pts to only 2.75%-pts.


Potential impact on palm oil demand in India

  • The higher effective import duties for CPO will raise the cooking oil price in India and could dampen demand for palm oil. This is near-term negative for CPO price as India was the largest importer of palm oil in 2019, accounting for 19% of total palm oil imports.
  • After the introduction of additional cess, the effective tax difference between CPO and refined palm olein narrows to 13.75% from 19.25% previously. This will be negative for the India palm oil refining industry and could favour imports of processed palm oil over CPO into India in view of the high export levy and export tax currently imposed on CPO in Indonesia which makes Indonesia palm oil refiners more competitive.
  • Overall, we view this news as a slight negative for upstream plantation companies and Indian refiners but a slight positive for Malaysia/Indonesia refiners and Indian farmers (due to plans to build domestic agriculture infrastructure with the cess). Reiterate sector Neutral.
  • See peer comparison table for Singapore and Malaysia agribusiness stocks in report attached below.





Ivy NG Lee Fang CFA CGS-CIMB Research | Nagulan RAVI CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-02
SGX Stock Analyst Report ADD MAINTAIN ADD 5.450 SAME 5.450
ADD MAINTAIN ADD 1.640 SAME 1.640
REDUCE MAINTAIN REDUCE 0.117 SAME 0.117



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