JAKARTA (Commodity Online): With Indonesia slashing export taxes on refined edible oils from October, it may be that some Indian edible oil refiners will have to shut shop.
According to Jakarta Globe report citing Reuters, Indonesia will seal its export tax for refined edible oil at 22.5% from 25% even as the ceiling on palm oil olein products have been cut to 13 percent from 25 percent.
This means, Indonesian crude palm oil (CPO) will cost $1,270 while RBD palm olein would cost $1,249. For India, the amount to be paid for a ton of RBD palm olein would be $1,336, just 5% more than imports of tax-free crude palm oil. This is despite India’s imposition of 7.5% tax on RBD palm olein.
“There are cost savings in importing the finished product rather than spending money to import crude palm oil and refine it in India. We could see some shutdown in Indian capacity,” said Sandeep Bajoria, chief executive of Sunvin Group to Reuters. “At least 500,000 tons of refined palm olein will be taken up instead of crude palm oil in the short term.”
The figure translates into a 40% jump in refined palm olein imports that hovered at 1.2 million tons in the marketing year ended October 2010. India’s CPO imports for the term stood at 5.2 million tons
By axing the export tax tree on refined edible oils, Indonesia, currently lagging Malaysia in refining capacity, would see a flurry of investments in the sector. Inflation stricken China and India, would also be benefitted as the world’s top producer and exporter of palm oil would slash taxes.
It may happen that these growth savvy countries may even dare to set up shop in Indonesia in refining segment.
“It is not just about importing more refined products. We could see a shift in business strategy. Indian and Chinese companies are surely going to set up plants in Indonesia,” the report cited sources.
But resultant excessive capacity may have a negative impact on pricing in the long-term, says Standard Chartered.
“Indonesian downstream palm oil refinery operations would likely garner larger market share from their Malaysian counterparts and with the maximum export tax on CPO reduced by a far smaller proportion, Indonesian CPO producers would have the incentive to sell CPO domestically to downstream operators or develop refining capabilities of their own which could trigger a flurry of investments in refining operations.” –adds Barclays.
A key factor to watch would be the reaction of the Malaysian government to this revised tax structure.
The Indonesian government’s latest move is in line with its broader industrial policy to provide fiscal incentives to promote more downstream, value-added industries.
