India's Ministry of Commerce & Industry has suspended, effective immediately, import licenses for refined palm oil on suspicions that export consignments from Nepal, Bangladesh and Indonesia are taking place "without strict adherence of Rules of Origin" criteria, according to a document seen by S&P Global Platts Monday.
Nepal and Bangladesh export refined palm oil to India with a zero-rate customs duty under the South Asia Free Trade Area agreement, conditional to Rules of Origin criteria. Similarly, exports from Indonesia are subjected to RoO criteria under the India-ASEAN FTA.
According to the document, it has been observed that there has been a sharp spike in imports of refined palm oil from Nepal, from 45,667 mt in 2018/19 to 189,078 mt on 2019-20. From Bangladesh, imports have increased from 3,698 mt in 2018-19 to 22,151 mt in 2019-20.
All 39 licenses issued to different firms since January 8, when India imposed restrictions on refined palm oil and palmolein imports, will be immediately put under suspension until an investigation is carried out.
The license suspension does not come as a surprise to many market participants.
"We knew that olein imports from Nepal also included Malaysian origin palm," said a Singapore-based trader. "This was an open secret, and I am surprised that it has taken so long to address. It was beneficial for Indian customers to buy from Nepal due to the difference in the import tax. Despite the high logistics costs involved with importing palm olein from Nepal, Indian customers could benefit from the huge spread in the import duty. Now, cheap olein imports will be stopped."
Stopping cheap olein imports is also likely to benefit India's domestic refineries.
"The decision to move imports of refined palm oil to the restricted list was to protect the local refining industry, at the request of a local lobby group," an India-based trader said "However, when they decided to modify the rules regarding the import recently I did not think that local refiners would remain quiet. To my understanding, the government has once again bowed to pressure from the Solvent Extractor's Association of India."
For palm oil prices, a broker felt that the sudden news would be detrimental for olein prices which are already low due to weak demand, but a Singapore based trader felt that the downside for Malaysian olein prices would be limited to $7.50/mt.
"This news if it's true is bearish for CPO prices which are already reeling under solid production in the face of fragile demand," said Sathia Varqa, owner and co-founder of Singapore based Palm Oil Analytics.
Since the start of India's 2019-20 marketing year in November to April, India's refined palmolein imports have decreased 70% on the year to 361,136 mt, according to data from the Solvent Extractor's Association of India.