KUALA LUMPUR: Palm oil futures, which have plunged more than RM200 or 10 per cent to RM2,627 per tonne in the last two weeks, is likely to drop further to RM2,580 as traders' pessimism persist.
Last Friday, the Indian Central Board of Excise and Customs raised import duties on crude palm oil to 30 per cent from 15 per cent, while for refined palm oil the import duties were raised from 25 per cent to 40 per cent.
CIMB Investment Bank, in its note to investors today, said India's tax hikes on palm oil imports would jack up domestic oilseed prices and would help improve incomes of farmers in India.
Currently, prices of key oilseeds in India, such as soybean and rapeseed, are below the minimum support prices set by its government.
Indian oilseed crushers are struggling to compete with cheaper edible oil imports, resulting in lower demand and prices for local rapeseed and soybean.
Since India is the largest consumer of palm oil, accounting for 15 per cent of global palm oil consumption, this recent tax hike will slow down its purchase from Indonesia and Malaysia, thus dampening prices.
CIMB Investment Bank noted India's higher import duties is negative for pure oil palm planters but broadly neutral on palm oil refiners because the duty differential between crude and refined palm oil remains intact at 10 per cent.
It maintained its forecast that palm oil would average at around RM2,800 per tonne by the end of the year. Its top pick counters are Sime Darby Bhd and Hap Seng Plantations Bhd.
In a telephone interview today, Jupiter Securities chief market strategist Benny Lee said, palm oil futures pricing has fallen quite drastically.
"I think there is still room for prices to sink further in the immediate term. It may continue to fall as low as RM2,580 before bargain hunting kicks in," he told NST Business.
"Seasonally, we see bullish sentiment in the last quarter of the year but there's a shift in weather patterns. With this slight delay, perhaps we'll see palm oil supply easing and bullish sentiment returning in January 2018," Lee said.
Maybank-Kim Eng told investors that while India's tax hike on palm oil would drag prices in the short term, it would still have to go on relying on palm oil imports to meet its nation's kitchen staple.
Last year, India imported 14.2 million tonnes of edible oils and fats to meet its people's consumption of 23.3 million tonnes of edible oils and fats.
Palm oil accounts for 8.3 million tonnes or 58 per cent of its total vegetable oil imports, followed by soya oil, sunflower oil and rapeseed oil.
India’s domestic production of edible oils and fats has been relatively flat at around 9 million tonnes a year for the past decade. It is not self-sufficient (due to lack of arable land) and has been a growing net importer of edible oils and fats to meet the demand of its growing population and rising affluence.
Maybank-Kim Eng maintained its neutral stance on palm oil sectors and recommended 'buy' calls on IOI Corp Bhd and Sarawak Oil Palms Bhd.