India buys more Malaysian CPO as tensions ease

India is boosting purchases of Malaysian crude palm oil (CPO) as political tensions start to ease between the two countries and prices fall below those of Indonesian supplies.

No refined palm olein shipments had entered India since import licences were suspended earlier this month following suspected rule violations, according to the Solvent Extractors Association of India (Seai).

This is fuelling demand for CPO, Seai executive director Dr B.V. Mehta said. But he is unable to confirm reports that around 200,000t of CPO has been booked for June-July loading over the past 10-15 days.

India imported 6.6mn t of CPO last year, with 4.4mn t coming from Indonesia and 1.75mn t from Malaysia. This was a result of Indonesian supplies being cheaper and Malaysia selling more refined palm oil instead of CPO because of favourable import duties from India throughout much of last year, before a political dispute between the two countries led to higher import taxes being imposed on Malaysian refined palm oil.

A change in the Malaysian government seems to have thawed relations between the two countries but import restrictions remain on refined palm oil from Malaysia, prompting Indian importers to purchase more Malaysian CPO instead.

Malaysian CPO also has a cost advantage with its landed price falling to around $535/t last week, $15/t lower than Indonesian supplies, keeping buyers interested in Malaysian product.

Indonesian suppliers are under additional pressure amid reports that the government may raise its CPO export levy by $5/t to subsidise its expanded 30pc biodiesel mandate for transport, although this is not confirmed. The current export duty is $25/t when CPO prices are at $570-619/t and is increased to $50/t when CPO prices exceed $619/t.

By comparison, Malaysia reduced its CPO export duty to zero for June as prices fell below the 2,250 ringgit/t ($517/t) threshold to implement the tax.

Indian demand has pushed up third-month Malaysian CPO futures on the fob Bursa Malaysia exchange by around $40/t since the start of the month to more than $500/t now.

By Amandeep Parmar