While there was some discussion last week that India may hike import tariffs on vegetable oil imports, the announcement on Friday resulted in a difficult start to this week's global trade. Monday's crude palm oil trade in Malaysia plunged 3.2% (benchmark February contract) to reach the lowest level seen in almost three months, while forming a bearish gap lower on the daily chart. February rapeseed closed .9% lower, December soybean oil closed 1.4% lower, while January canola ended .7% or $3.40/mt lower.
As seen on the attached chart, USDA forecasts India to be the single-largest importer of vegetable oils in 2017/18, with the November forecast suggesting imports will reach 15.82 million metric tons, up 5.5% from last crop year and accounting for 21.1% of total global imports. This is needed to feed an estimated domestic consumption of 23.09 mmt, or 12.2% of estimated global consumption. The bulk of these imports are palm oil, estimated at 9.5 mmt, while soybean oil imports are expected to reach 4.1 mmt, sunflowerseed at 1.7 mmt, and rapeseed/canola at 430,000 metric tons.
Friday's announcement revealed a hike in tariffs on crude and refined vegetable oil imports in order to protect India's domestic processing industry along with their farmers. The import tax or duty for crude palm oil imports was increased from 15% to 30% while refined palm oil duties were increased from 25% to 40%, a second round of hikes since increases were announced in mid-August. Rapeseed tariffs were increased from 12.5% to 25% (crude) and from 20% to 35% (refined).
While it is early days following the news, the weak sentiment seen in Monday's trade was short-lived as prices attempt to form a bottom. February crude palm oil futures posted a more modest loss in Tuesday to reach a fresh contract low, although ended the session in the upper-half of the session's trading range and near unchanged. Wednesday's close was higher. February rapeseed closed higher on Tuesday and Wednesday, after reaching a three-week low in Monday's trade. Soybean oil also reached a low Monday and has since climbed back to the midpoint of this week's trading range.
While prospects for future trade patterns will be watched as the USDA releases future demand estimates, a commodity specialist in India notes in the Hindu BusinessLine that farm tariffs should not be tinkered with and "any tinkering with trade policy without taking into account international sensitivities and trade relations can potentially lead to a backlash and retaliatory action."
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