India’s crude edible oil tax cut poses challenge for Malaysian planters with refining ops in Indonesia — CIMB Securities

The Indian government’s decision to cut import tax on crude edible oils on May 31 is likely to negatively impact Malaysian planters who have exposure to palm oil refining operations in Indonesian, CIMB Securities said.

In a note on Tuesday, the firm said this tax cut effectively narrows the import duty gap between crude palm oil (CPO) and refined palm oil, which had previously favoured crude imports.

“On the downside, the wider duty differential poses a challenge to Malaysian and Indonesian palm oil refiners, as it erodes their competitiveness versus Indian refiners. This may also intensify competition for feedstock (CPO).

“Additionally, Indian oilseed farmers could be negatively affected, as increased imports may put downward pressure on local edible oil and oilseed prices,” said the research firm.

This policy change in India might prompt a shift in demand towards refined palm oil imports, potentially reducing India’s intake of CPO and hindering Indonesia’s refining industry.

According to CIMB Securities, among Malaysian planters under its coverage, Kuala Lumpur Kepong Bhd (KL:KLK) and SD Guthrie Bhd(KL:SDG) have exposure to palm oil refining operations in Indonesia.

While the move could benefit Indian consumers through lower edible oil prices, it creates a less favourable environment for Indonesian refiners, which currently supply 86% of India’s refined, bleached, and deodorised (RBD) palm olein.

India has halved the basic import duty on crude edible oils to 10%, aimed at curbing food inflation and supporting the domestic refining industry. The reduction applies to CPO, crude soybean oil, and crude sunflower oil. Edible oils are also subject to a 5% agriculture infrastructure and development cess, and a 10% social welfare surcharge.

The effective tax rate is now at 16.5%, down from 27.5% previously. Import duties on refined edible oils stand at 35.75%, to encourage higher imports of crude edible oils over refined oils, to boost Indian refinery utilisation rates.

The previous duty structure, which imposed a higher import duty on refined palm oil, incentivised Indian refiners to import CPO for domestic processing.

The new policy, however, brings the import duties on crude and refined palm oil closer, allowing Indian buyers to import refined palm oil at a more competitive price.

This could lead to increased imports of refined palm oil by India, potentially impacting the profitability and operational capacity of Indonesian refiners who have invested heavily in their domestic refining capabilities.

CIMB Securities also maintained a CPO price forecast of RM4,609/tonne for the first four months of 2025.