India slashes CPO import tariffs

CPO tariffs cut but not soy oil?s

Effective 20 March, import duties for vegetable oils, with the exception of soy oil, have been cut. The import tariff for crude palm oil (CPO) has been slashed to 20% from 45% ? one of the single largest cuts in recent times. Similarly, refined palm product duties have been slashed to

27.5% from 52.5%. The duty on soy oil imports remains at 45%. We believe more cuts are in store in coming months.

Driven by inflationary concerns and poor harvests

�� Demand for commodities is most inelastic at the lowest prices and hence, CPO is the prime beneficiary of any down-trading;

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These events further strengthen our conviction that the sector offers excellent buying opportunities, despite the subdued commodity market.This tariff cut may occur at the expense of soy oil, despite it not being included in the recently released Indian budget.

India will stay a strong buyer of palm oil

417,000 tonnes of palm oil, 70% more than in January 2007 ? even with a 45% import tariff. In the same period, however, India only imported 84,000 tonnes of soy oil (unchanged compared to January 2007). India is expected to buy between 4.8-5.0m tonnes of palm oil in 2008, up from 4.3m tonnes in 2007, while soy oil imports will fall to 0.6m tonnes from 1.2m tonnes a year ago.India will buy more CPO in 2008-09. As of January 2008, India imported

Remain overweight plantations Share prices are coming in-line with the sell down of the physical commodity now that speculative positions and market nervousness is decreasing. Nevertheless, the sector?s drivers are strong and have not changed. As seen in this new development, our expectations are crystallizing. Top picks are in the table above. Strongest upstream players are: KL Kepong, Golden Agri Resources and Astra Agro Lestari.Concern over rising inflationary pressure from imported foodstuff and poor domestic harvests (drought induced) are the main drivers. Even after the recent global commodity sell-down, CPO still trades at a USD200/tonne discount to soy oil. In India, CPO is used primarily to make vanaspati ? a common item used in cooking food. In our recently released ?Asia Plantations? report dated 18 March 2008, we argued that:

17:05:02     0.970      14,376,000               X
16:59:59     0.960               2,000               Buy Up
16:59:59     0.960             44,000               Buy Up
16:59:59     0.955               5,000               Sell Down
16:59:56     0.960               5,000               Buy Up
16:59:55     0.960             20,000               Buy Up
16:59:47     0.960             10,000               Buy Up
16:59:36 0.960                   5,000               Buy Up

Cheers!