Edible oil refiners put on hold capacity addition plans as cheaper imports rise

Written by Banikinkar Pattanayak | New Delhi | Updated: Feb 29 2012, 09:12am hrs
KeY edible oil refiners, such as Adani Wilmar and Ruchi Soya Industries, have put on hold plans to add capacity as large inflows of cheaper refined oil from Indonesia have sparked fears about vast capacity remaining idle this year, senior company executives said on Tuesday.

The companies, which together account for more than one-third of the countrys refining capacity, say the biggest supplier Indonesias cut in taxes on refined oil exports, while keeping the duty on crude edible oils at an elevated level, has forced Indian buyers to step up purchases of refined oils. Compounding their worries, the Indian government hasnt yet rationalised the edible oil import duty structure to discourage dumping of refined oils, fearing its adverse impact on food inflation.

Port-based edible oil refineries are bleeding. The import of olein has more than doubled in the past two months, while crude edible oil purchases have suffered. None can dare to go on with capacity addition plans in such times when one cant utilise their existing capacity to the fullest, Adani Wilmar chief executive Atul Chaturvedi told FE.

The R10,000-crore companya joint venture between The Adani Group and Singapores Wilmar International runs Indias first port-based refinery at Mundra in Gujarat. The companys annual refining capacity stands at 3.28 million tonne.

Similarly, Ruchi Soya has held back plans to add 1 million tonne of refining capacity to the current 2.2 million tonne a year, said a senior company executive, who didnt want to be named.

Indonesia, the worlds largest palm oil producer, has cut the maximum tax on refined, bleached and deodorised palm olein to 13%, from 25% earlier, while crude palm oil is taxed at a maximum of 22.5% from 25% earlier in a bid to encourage local refiners to expand.

The current market scenario where there is hardly any gain in crushing domestically has forced us to slow down our expansion of the refining capacity. Ruchi Soya has started importing refined oil due to the change of tax regime by Indonesia. Several refiners in India are facing difficulties in running their units to full capacity, the executive added. Refined edible oil imports by India, the worlds biggest buyer, jumped 11% in the first three months of the oil year that started in November, compared with a marginal 1.2% gain in crude oil purchases, according to the data by Mumbai-based Solvent Extractors Association (SEA). Similarly, the share of refined oil in total edible oil imports has risen for a third straight month to 18% in January from 13% in November, while crude oil made up for 82% of purchases last month from 87% in the first month of the current oil year. The narrow cost gap between imports of crude and refined oils have driven up purchases.

India meets more than a half of its annual edible oil requirement of 16 million tonne through imports, and buys around seven million tonne from Indonesia alone. The countrys edible oil imports rose 3% between November and January to 21,30,091 tonne, compared with 20,74,236 tonne a year before.

The share of Indias refined edible oil purchases in the overall imports may more than double this year, said SEA executive director BV Mehta. This will lead to huge job losses at domestic refiners, he added. The crushing of domestic oilseeds has also been adversely affected due to cheaper imports, another industry executive said.

The edible oil industry is pitching for an increase in the import duty on refined, bleached and deodorised palmolein to 16.5% from 7.73% to prevent dumping of the cooking oil from Indonesia. It also demands that the benchmark import price of RBD palmolein upon which the import duty is calculated needs to be raised to $1,150 (over R56,000) per tonne from $484 per tonne for effectively discouraging imports. The government hasnt revised the benchmark import price of the commodity since 2006, said industry executives.

If the government doesnt take corrective measures, you will see refining capacity addition only in Indonesia and not in India, Adanis Chaturvedi said.

The total investment on port-based refineries in the country is around R10,000 crore, with direct employment of over 5,00,000 people, according to an industry estimate. Domestic companies have been building up capacities since 2001 when the government introduced differential duty structure for crude and refined palm oil imports. However, the government hasnt yet decided on imposing a higher tax on refined oil purchases, a senior official said, as inflation has only recently receded after remaining at a stubbornly high level for more than two years.

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