India's decision to raise import taxes on edible oils by 20 percentage points is set to significantly impact global vegetable oil markets. The hike, effective from 14 September 2024, has increased import duties on crude palm oil (CPO), crude soybean oil (SBO), and crude sunflower oil (SFO) from 5% to 25%. Similarly, taxes on refined, bleached, and deodorised palm oil, olein, SBO, and SFO have risen from 12.5% to 32.5%. Despite this adjustment, the duties on crude and refined rapeseed oil remain unchanged at 35% and 45%, respectively.

Maybank Stock Broking House have adjusted their outlook in response to these changes, maintaining a NEUTRAL stance on the sector. The recommendation for SDG, SOP, TAH, and BAL remains a BUY. The import tax hike is expected to suppress demand for vegetable oils in India, the world's largest importer of palm oil. This is likely to exert downward pressure on the price of CPO in the short term. Additionally, a correction in CPO prices had been anticipated due to the approaching peak crop season in Q4, particularly in Indonesia.

India's vegetable oil imports had already decreased to 1.56 million tonnes in August 2024, a 16.5% drop from the previous month, possibly in anticipation of the tax increase. Inventory levels had been rebuilt to 2.925 million tonnes by 1 September 2024, despite a slight year-on-year decline. The overall market share of palm oil in India's vegetable oil imports had decreased from 59% to 57% between November 2023 and August 2024.

The current price strength of CPO, driven by tight supply in Indonesia, has resulted in narrower discounts compared to other oils like SFO and rapeseed oil. This reduced competitiveness is expected to persist, with CPO trading at a small premium over US soybean oil but failing to maintain historical price advantages. Given the anticipated peak output in Q4, the high CPO price is likely to be unsustainable without a broader discount to support demand.