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Soybean imports spurt on tax discount

February 11, 2016

KARACHI: Pakistan’s edible oil traders see a record increase in soybean shipments this season as a tax discount on the imports of oilseed over rival palm oil has widened, while the market also tapped into ample global supplies.

“The country has been a heavy buyer of soybeans as weak global prices and duty advantage over other oilseeds have made soybean imports for local crushing more attractive,” Rasheed Janmohammed, chairman at Pakistan Edible Oil Refiners Association, told The News. “Last year (2015) soybean imports were very aggressive.”

Janmohammed said buyers have already covered their required quantity of soybeans for the first half of 2016.  “This shift of buying soybeans will ultimately reduce the import of other oilseeds like canola, rapeseed and sunflower seed,” he added.  The imports of oilseeds increased 19.56 percent during the last calendar year of 2015.

Pakistan is the world’s fourth largest consumer of vegetable oil, 90 percent of which is covered by imports, mostly of Malaysian RBD palm oil and olein. The country’s domestic demand is around 3.7 million tons.  Industry officials estimated annual imports of 2.6 million tons of edible oils this season. Pakistani edible oil market is dominated by palm oil with a 71 percent market share.

The country charges a fixed 8,742.50 rupees a ton as import duty on palm oil imports, besides a 16 percent sales tax, one percent additional duty and 5.5 percent advance income tax. However, traders pay a fixed duty of 400 rupees per ton on oilseed imports along with a 16 percent sales tax, two percent import duty and 5.5 percent advance income tax. 

Shakil Ashfaq, another official, said import of soybean is expected to rise to 1.146 million tons during the current year, followed by 666,000 tons of canola seeds.

“From 2017 onwards, canola seed imports can be expected to decline initially to 550,000 tons, and thereafter grow organically at 4-5 percent to cater for the inelastic demand for canola oil.”  The country’s oilseed import is expected to reach two million tons mark in the year 2018.

“I expect soybean seed imports to grow at a rate of 15-20 percent from the next year (2017),” Ashfaq said.

The country’s 80 solvent extraction plants have a combined annual capacity of around 4.8 million tons. 

Industry official said Pakistan’s shift to cheaper soybean from pricier edible oils will be a big step forward in reining cost of imports. Prices of Southeast Asian edible oil are souring in recent months.

Palm industry officials said palm oil prices could jump more than expected to 2,700 ringgit/ton in the second quarter, the highest since early 2014, as seasonally lower output and dry weather dent inventories across Southeast Asia.

Concerns that dryness linked to an El Nino weather pattern will lower fresh fruit bunch yields in top producers Indonesia and Malaysia have already lifted palm oil prices to a near 21-month top of 2,604 ringgit ($626.71)/ton.

They said Malaysian production is likely to decline from January to June, drawing down palm oil stockpiles. Output may only pick up in July. Replenishment of stocks may take a bit longer - possibly until September 2016. This could potentially push palm oil prices to 2,700 ringgit in the second quarter.  If El Nino droughts return by mid-year, Southeast Asian production could fall four million tons in 2016.

They, however, see palm oil still to dominate the local market.  “Palm oil will continue to make inroads in the Pakistani market as it is the most suitable to meet consumers needs,” an analyst said.