Indonesia may cut palm oil export tax to offset India tariff rise

NEW DELHI/JAKARTA Fri Jan 10, 2014 8:13am EST

NEW DELHI/JAKARTA Jan 10 (Reuters) - Indonesia may consider cutting the export tax on refined palm oil to offset an increase in import tariffs by leading buyer India, officials and traders said on Friday.

India on Thursday raised the import duty on refined edible oils including palm oil to 10 percent from 7.5 percent to protect local oilseed growers and refiners.

India is a major market for the world's No. 1 palm oil producer, particularly since the euro zone crisis has weakened demand from Europe, according to Indonesia's deputy trade minister, Bayu Krisnamurthi.

"We'll watch (this development) closely and recalculate our policy," Krisnamurthi told reporters.

The latest duty pushes up the landed cost of refined palm oil in India to about $845 a tonne, which Indian traders said was too steep.

Trade and industry officials expect Indonesia to cut its export tax and major supplier Malaysia also to reduce prices of its cargoes to maintain steady volumes of shipments to India.

"Everybody is waiting for Indonesia and Malaysia to adjust their prices," a Mumbai-based dealer said. "Unless they reduce prices, it will be difficult for Indian buyers to make purchases."

Indonesia imposes a 7 percent tax on refined palm oil exports, while rival Malaysia allows tax-free shipments, traders said.

To encourage imports of crude palm oil, instead of the refined variety, India kept the duty on crude palm oil unchanged at 2.5 percent. Crude palm oil currently costs about $825 per tonne on India's west coast.

"Exports (of refined oil) will be hit hard," a Kuala Lumpur-based trader said, adding that Indonesian refiners' margins will be affected if India imports more crude palm oil.

But India's vegetable oil refiners said the import duty on refined oil ought to be higher still, with some recommending a level of about 14.5 percent.

"This (duty hike) is too late and too little," said Dinesh Shahra, managing director of Ruchi Soya Industries, India's top edible oil buyer. "It may not do much to help the plight of the Indian refining industry, which has been suffering for the past year."

India's refined palm oil imports surged 40.5 percent to 2.2 million tonnes in the year to October 2013 after Indonesia changed its tax structure to favour exports of refined products over crude to support its refining industry.

Imported palm oil constitutes about 80 percent of India's total annual vegetable oil demand of 17-18 million tonnes. New Delhi also imports a small quantity of soyoil from South America. (Additional reporting by Rajendra Jadhav in Mumbai and Anuradha Raghu in Kuala Lumpur; Writing by Mayank Bhardwaj; editing by Jane Baird)

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