After much pain, it is time for the palm oil refining industry to rejoice. Following the Union Commerce Ministry’s decision to increasing safeguard duty on Malaysian refined palm oil, the industry is looking to improve capacity utilisation, which will boost the positive cycle further.

The Solvent Extractors’ Association of India (SEA) welcomed the Ministry's notification for imposing 5 per cent safeguard duty on Malaysian RBD Palmolien/RBD Palm Oil.

Duty increase

The Director General of Trade Remedies (DGTR) recommended the increase in customs duty by 5 per cent from the existing 45 per cent to 50 per cent on imports of two varieties of palm oil originating in Malaysia for a period of 180 days to safeguard the interests of domestic industry.

The decision came after the industry raised multiple appeals to the government to save the industry suffering from idle capacities and escalating fixed costs.

The duty difference had left large processing capacities idle. Estimates suggest that as against India’s total installed crushing capacity of about 25 million tonnes per annum, only 40-45 per cent remained operational and the rest became a burden on the companies as fixed cost.

Oil dumping

A Comprehensive Economic Cooperation Agreement (CECA) was signed between India and Malaysia in February 2011. In January 2019, the import duty on refined palm oil was brought down from 50 per cent to 45 per cent, while that on crude palm oil (CPO) remained at 40 per cent.

This reduced duty difference from earlier 10 per cent to 5 per cent. This situation allegedly chennalised all palm oil imports from other regions via Malaysia, thereby virtually making India a dumping ground for palm oils.

Non-viability

Veteran edible oil expert Govindbhai Patel told BusinessLine , “The 5 per cent duty difference between CPO and RBD palmolein was not financially viable for the refining industry as large chunk of imports of refined oils continued. This brought down the capacity utilisation significantly for the industry.”

As per the data compiled by SEA, the refined oil imports jumped from 1,08,911 tonnes in November last year to 371,060 tonnes in May 2019 and last it was reported at 2,64,718 tonnes in July 2019.

”Now the earlier situation of higher duty difference between crude and refined oils will prevail and we will see improved capacity utilisation of the refiners,” Patel said. Commenting on the government’s decision, BV Mehta, Executive Director, SEA, said, “The Indian palm refining industry has been passing through tough times due to huge influx of RBD palmolien from Malaysia on the back of the import duty advantage of 5 per cent. This decision will go a long way in saving the palm refinery industry in our country and will also help in improving capacity utilisation of the palm oil refining Industry in line with our ‘Make in India Policy’ and will also support domestic farmer for better realisation of his produce.”

The stock position at ports has come down sharply. The SEA data showed that total stock as on August 1, 2019 stood at 19,95,000 tonnes, which is lower by about 5 lakh tonnes from 24,75,000 tonnes reported in same month last year. India’s monthly requirement is about 19 lakh tonnes and operate at 30 days’ stock.

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