MUMBAI – Earlier this month, India raised customs duty on Malaysian palm oil, bringing the import duty rate at par with those on other countries such as Indonesia. However, Indonesian Palm Oil Association sees the hike as too late to recover the market share lost to its closest competitor in India, the world’s biggest importer of palm oil.
“Our (Indonesia’s) exports of refined oil may not rise in rest of this (calendar) year to last year’s level as the magnitude of the loss in exports (prior to duty change) was much higher,” said Joko Supriyono, chairman of the association, also known as GAPKI.
Supriyono was speaking to Cogencis on the sidelines of Globoil India-2019 here on Wednesday.
India had to reduce the import duty on Malaysian refined palm oils from Jan 1 to 45% under the bilateral trade agreement between the two nations signed at the beginning of this decade. However, the duty on Indonesian oil remained intact at 50%.
The difference led to a surge in refined oil imports from Malaysia and hurt Indian refiners. After a number of representations from the industry and farmer bodies’, the duty was raised by 5 percentage points.
Supriyono said that although duty parity should help spur Indonesian palm oil shipment to Malaysia from September, it would not cause a drastic turnaround.
“In the current calendar year, palm oil exports from Indonesia to India are seen at 4.5-5.0 mln tn. Last year, it was 6.7 mln tn,” he said, adding that Indonesia’s palm oil exports to India at 2.5 mln tn during Jan-Jul was 20% lower from the corresponding period last year, according to the association’s data.
Despite the drop, Indonesia’s total shipment for the first seven months rose 4.7% to 17.8 mln tn, thanks to a 47% jump in shipment to China, the second biggest and largest destination for the country after India.
Still, Supriyono sees challenges for the edible oil in coming months due to subdued exports to India and the US, among others.
The overall shipment in 2019 is seen falling to 33 mln tn compared with over 34 mln tn last year, he said. His latest estimate is in contrast to his earlier view of a 4-5% increase in 2019.
Supriyono estimates output in the world’s biggest palm oil producer could reach 50 mln tn this year.
Last year, Indonesia produced 47.2 mln tn, of which 43.0 mln tn was crude palm oil. The 2018 output was boosted by favourable weather and an additional 200,000 ha of plantations, up 12-13% from a year earlier.
With production still going strong, the Indonesian government is planning to increase the palm-based blend used in diesel fuel. Starting January, the authority requires diesel fuel used in the country to have a 30% blend of palm oil-based fatty acid methyl ester, a step up from 20% currently.
Several industries, particularly automobiles and heavy machineries, are sceptical with the plan as no manufacturer has ever designed engines with such specifications.
However, Supriyono believes that the 20% blend target this year is achievable. “We will need 6 or 7 mln tn palm oil for the B20 programme,” he said, estimating the domestic consumption of palm oil at 15-16 mln tn this year against 13.5 mln tn in 2018.
“Next year, the requirement will be higher, but the production is also going to increase, so exports may not be impacted,” he added.
The administration of President Joko Widodo is stepping up the palm-based biofuel programme as the country seeks way to lower fuel imports amid elevated current account deficit.