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Govt considering to remove 2% ACD on Palm Oil import

June 01, 2022 (MLN): The government of Pakistan is considering the removal of 2% Additional Customs Duty (ACD) on the import of Palm Oil from the rest of the world except Indonesia in the backdrop of surging palm oil prices in the international market.

The said measure is likely to benefit listed edible oil manufacturers, UNITY, and POML. However, the removal of 2% duty is only being introduced for a limited time period i.e., 10 days, a report by AKD Securities noted.

Recently, Indonesia has allowed companies to start exporting palm oil only if exporting companies fulfill prerequisite Domestic Market Obligation (DMO) where domestic demand is estimated at 10mn tons or around 30% of total production as per the Indonesian economic minister.

To recall, the largest global palm oil exporter, Indonesia, in April 2022 halted exports of crude palm oil in order to curtail soaring domestic cooking oil prices. The move shook edible oil markets which were already rattled by the Russia-Ukraine conflict and soaring global food prices.

As per the estimates, the removal of 2% duty would reduce landed palm oil price by Rs4800 to Rs5000 per ton and would eventually translate into an annualized EPS gain of Rs0.2/0.42 per share for UNITY, assuming 50/100% import substitution from Malaysia and no pass on.

Furthermore, the report assumes 15% of Pakistan’s import substitution of Indonesian palm oil with Malaysian palm oil, increasing Malaysian share in total imports to 30-35% from 15-20%.

Globally, Malaysia is the second-largest producer of palm oil with estimated 19.8mn tons of production in FY22 – 25% of global production.

To note, under the current structure, custom duty on import of edible oil from the rest of the world except Indonesia and Malaysia is currently levied at PkR10,080/ton while PkR9,230/ton is levied on import from Indonesia or Malaysia. A 2% additional customs duty is charged on top of the aforementioned custom duties.

Additionally, Pakistan could also consider Thailand, the third-largest producer with expected 3.3mn tons of production in FY22 with 4% of global production as the next best alternative after Malaysia.

The report also indicated that Thailand can also be a suitable substitute for players like Colombia, Nigeria, and Guatemala due to its closer proximity to Pakistan, ongoing supply chain complexities, and volatile freight rates.

 However, mounting inflationary pressure, Govt. may force edible oil manufacturers to pass on the cost-benefit to end consumers, it noted.

Copyright Mettis Link News

 

Posted on: 2022-06-01T12:24:17+05:00

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