Through a notification issued on 13 April 2020 via Trade Notice No. 2/2020-21, the Government of India (GOI) has updated the conditions for palm oil imports, reducing the validity of import licences and demanding a pre-purchase agreement for the shipments. The Ministry of Commerce and Industry of India issued a notification on 8 January declaring that the import of refined palm oil was amended from ‘Free’ to ‘Restricted’.

In the latest ruling, import of refined palm oil will be permitted subject to the following conditions: 

• Importer have to apply for license for importing refined palm oil;
• When they apply for the license, they must show a contract that they will be importing. (Licenses for over 1 million MT of refined palm oil were issued earlier this year, but nothing came out of it. Hence, this move is to avoid unscrupulous practices. GOI wants to avoid industry just taking licenses and idling it away). 
• Earlier validity was for 18 months, now it states 6 months only. 
• Once licenses are issued and the company does not import within 6 months, no license will be issued to that company in the future. 
• Rules of Origin should be strictly followed for imports from neighbouring countries. 
• Importers need to show the last 3 years’ import records. 

The latest news were not surprising given the current situation. With the current nationwide lockdown, demand from the hotels and restaurants has declined by up to 40%. It was reported earlier that the Indian Prime Minister had no intention to extend the current lockdown. However, extension could now be possible as the surge in positive covid-19 cases have been reported. It is widely believed that the decision is likely made amidst the fear that supply of edible oil would be strained due to the lockdown, as most refineries are currently running at lower rates.

The news should also provide some support to palm olein prices besides giving the refiners some sort of relief under the present low palm olein prices situation. Based on a report, the decision was also brought about as the government wants to ensure that prices of vegetable oil and food is kept under control. As the Ramadan month is fast approaching, the decision could also be taken in a bid to ensure there will be enough supplies of edible oil before the holy month commences.

As reported by S&P Global Platts, an India-based buyer attributed the modification of the validity of the import licenses to the need to protect the local refining industry. “In January, the decision to restrict refined palm oil products was taken to protect the local refiners. However, run rates are low now, and the workforce is crippled. Thus, I feel that this is just a temporary measure that will mitigate supply shortages, and also appease the local refiners. It is kept to six months to show that this will not be an ongoing practice or industry norm,” said the source. 

A Malaysia-based refiner also added that this may impact the price of palm stearin. “With this development, I expect around 250,000 MT of olein to be produced, which will also result in around 50,000 MT of stearin in the market. Stearin prices are currently at a premium to CPO due to higher demand from the oleochemical industry, and this additional supply may affect stearin prices,” the source said. 

However, importers may not actually buy refined palm oil anytime soon, as the present import margins are not attractive enough.

On the local front, this could be a welcoming news for Malaysian palm oil. With the new Government, Malaysia has better chance now to export refined palm olein to India. At this point, with so many challenges due to the ongoing Covid-19 pandemic, the Indian government wouldn’t want too many obstacles in the supply chain that could affect edible oils supply, thus this could prove the turning point for Malaysian palm oil suppliers to up its ante.

Prepared by Azriyah Azian with Bhavna Shah

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