The Hindu Business Line : Palm oil Customs duty: What will happen after Dec 31?

The basic Customs duty on palm oil which currently stands at 70 per cent ad valorem for crude and 80 per cent for refined palm oil will remain in force for two more months, that is till December 31, according to reports in a section of the press; but no notification on Government Web sites was found till Tuesday afternoon.

The decision to leave the rate of duty unchanged for the time being and review it after two months is said to have been prompted by the strong desire on the part of policymakers to check the rising prices of essential food products including edible oil.

Kharif, rabi prospects

The kharif 2006 oilseeds crop is below expectation (over 15 per cent less) and certainly less than last year's output, with groundnut crop taking a big hit. Oil availability from out of the latest harvested crop would, therefore, be lower by an estimated 8-lakh tonnes; and the gap will have to be filled through imports. The prospects for the next crop (rabi), too, are unclear as wheat and pulses will compete with rapeseed/mustard for larger acreage.

The Centre has been under intense pressure for the last several months over spiralling prices of wheat, pulses and sugar; and would not want edible oil to join the list anytime soon.

In order to meet the pressure of lean season and festival demand during August-October, the Union Government on August 11 had cut the basic customs duty on imported palm oils (crude and refined) by 10 percentage points valid till October 31.

Suspense ended

For the time being, the Centre has ended the suspense over customs duty on palm oil; but traders are asking the same question again - what will happen after December 31?

Because of uncertainty over the rate of duty after October 31, there has been a slowdown in Indian purchases for the last several weeks. Palm was the only major oil with import parity; yet arrivals had lost momentum.

The pace of contracting is sure to pick up from now on and one can expect sizeable volumes of palm oil to arrive in the next 4-6 weeks.

Meanwhile, palm oil market continued to rule firm, helped by rising demand from the bio-diesel sector. Hype and exaggerated demand projections have also contributed to the market refusing to soften, despite considerably large inventory at the origins.

The latest decision to keep the duty rate unchanged for two more months and anticipated rush of importers to book parcels should provide a welcome relief to palm oil producers who have been both nervous and desperate in doing everything within their capacity to boost prices or not allowing prices to soften. India may willy-nilly have helped sustain the price levels of palm oil.

Currently, crude palm oil is quoted at $425-430 a tonne free-on-board at the origin while refined palmolein is around $450-455/tonne.

More Stories on : Oilseeds & Edible Oil | Excise and Customs

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