As news arrives from India that the government is considering hiking the import taxes of edible oils by a further 10% (/news_detail.asp?art=16975), the world's largest palm oil producer and refiner is getting concerned. Malaysia is set to suffer as the Indian market balances are tipped in the favour of crude palm oil (CPO) and other soft oils, while comparably extortionate duties on refined, bleached or deodorised palmolein (RBD) decimate demand in Malaysia's largest export market.

The first round of heavy import duties meant the emergence of a huge difference between the price of CPO and RBD edible oils, and this affected the Indian market considerably. With prices hiked by 44%, consumers who previously purchased the palmolein have switched to cheaper imports of CPO from Indonesia and soyaoil from South American countries Argentina and Brazil, products that are taxed at 16.5% and 27.5% respectively. A Malaysian trader explained that: "If the duty differential between crude and refined (edible) oils gets any wider in India, the preferred oil will surely be CPO. Then Malaysia is surely in trouble."

From the same June to September period in 1999, the Solvent Extractors Association of India revealed that this year's palmolein imports dropped by 47% and Malaysian traders are encouraging producers to now concentrate on CPO exports in a bid to retain their market share in India.

This move is a reluctant one, however, as the government has previously sought to protect its refineries with higher export duties on CPO, but the Primary Industries Minister, Lim Keng Yaik, has been forced to reconsider and a number of companies are exporting CPO without duty. (/news_detail.asp?art=14088). A trader explained: "We have to allow more export of CPO and probably wind down our refineries for a while if we're going to survive the onslaught from Indonesia CPO and soyaoil."

It seems unlikely that over the next two years the oils market worldwide will change a great deal. International trading manager at Pacific Interlink, Nakul Rastogi, said: "With more than 70% of Malaysia's palm oil going to these countries, any cutback, particularly in India, could spell serious trouble."