Indian tax holiday on sunflower, soybean oil imports to affect market after June

India’s complete tax waiver on annual imports of 2 million mt each of crude sunflower and soybean oil may pressure palm oil imports, but the impact on the world’s largest vegetable oil buyer will be visible only after June, market sources have told S&P Global Commodity Insights.

India announced May 24 a tariff rate quota that allows for the duty-free annual imports from May 25 through March 2024, in a bid to cool inflation in domestic edible oil prices. This reduces the effective import tax rate on both the soft oils to zero from 5.5%.

Vegetable oil refineries will have to apply for a license from the Directorate General of Foreign Trade, India’s trade watchdog, to obtain the quotas, also known as TRQs. Applications must be submitted by June 16 as allocation will take at least 15 days, Indrajit Paul, senior manager at Gurgaon-based Origo Commodities, told S&P Global.

“The tax benefit shall apply to fresh imports only,” Paul said.
Zero-duty sunflower and soybean oil imports will take time and the old cargo will be released at the existing 5.5% duty, sources say.
This may lead to tightness in the supply of these oils in the short term as licenses to import them will have to be routed through the foreign trade directorate, or DGFT, RK Singhal, who runs his own India-based commodities news service, said.

India imports roughly 14 million mt of vegetable oils annually, of which palm oil accounts for about 60%, followed by soybean oil and sunflower oil, at 35%-40%, according to data from national trade body, the Solvent Extractors’ Association of India.

Crude palm oil is being currently quoted in India at CIF $1,780/mt for June, while crude soybean oil is at CIF $1,837/mt, according to Manoj Shukla, senior analyst at Agriworld. However, with the 5.5% tax still applicable on palm oil, its landing price will effectively rise to $1,873/mt, making the case for higher soybean oil imports ahead, he said.
Palm oil margins pressured

While palm oil enjoys a lion’s share of the price-sensitive Indian market as it is traditionally the cheapest of the major vegetable oils, soft oils such as sunflower and soybean are preferred by buyers there if the margin between palm and soft oils is less than $80-$100/mt.

“With the current spread between crude palm oil and soybean/sunflower oil, the landed cost for palm imports is comparatively high and Indian importers shall shy away from booking palm oil shipments,” Mukesh Goyal, head of India business at Singapore-based commodity company Saveraa International, said, cautioning that this estimate will depend on June export prices at origins.

“In the current scenario and prices, we might see monthly CPO imports to 450,000-500,000 mt, while soybean oil import may rise to 420,000-450,000 mt, and sunflower oil could be at 100,000 mt,” Goyal said.

“Cutthroat” margins in a price sensitive market like India dictates purchase at all levels, a Mumbai-based vegetable oil trader said. Argentina and European sunflower oil FOB prices were at $2,050/mt and $1,975/mt, respectively, making them pricey despite the tax waiver, while Ukraine, the world’s largest exporter, is unable to send shipments currently because of its war with Russia, the trader added.

South American FOB soybean oil prices strengthened on a nearby basis May 24 after India’s decision with offers for July bouncing back to a premium to CBOT, while bids remained at a discount, although at a higher level from May 23.

While a trade was heard for June loading FOB Paranagua at plus 20 points to the CBOT July (N) contract, Argentina’s FOB Up River had no deals confirmed May 24, though a late May 23 transaction for June was reported, according to sources.

There were some movements again on May 25 as Argentina’s FOB Up River, in turn, recorded deals for June dates at plus 50 points and plus 70 points to CBOT July (N) for some 25,000 mt. The transactions were linked to Indian spot demand as international prices also went down, according to sources.

The physical market price of CPO FOB Indonesia stood at $1,710/mt May 26, S&P Global data showed. Brazilian Soybean oil FOB Paranagua was assessed at $1,779.57/mt and sunflower oil FOB Black Sea Ukraine at $1,779.50/mt on May 26. The Argentinian FOB Up River price was at $1,777.37/mt.

India’s import of soybean oil in current marketing year 2021-22 (November-October) is estimated to touch a record high of 4.2 million-4.5 million mt while palm oil import will drop to 6.5 million-6.7 million mt, owing to higher prices and supply uncertainty, Agriworld’s Shukla forecast.

Tags: imports, quotas, inflation, edible oil, Market, sunflower oil, tax, soybean oil, duty-free, prices, tariff rate quota, Vegetable Oil, India, palm oil