By Neha Popat
LONDON (ICIS)--European market players are braced for change with the implementation of import duties on palm-based fatty acids from India, Indonesia and Malaysia in 2014.
Previously, producers in these countries were able to take advantage of the Generalised System of Preferences (GSP) scheme, allowing them preferential access to the EU market without paying any duties on imported fatty acids.
However, this is all set to change.
As of 1 January 2014, a 5.10% duty will be applied to palm stearic acid imports from India, Indonesia and Malaysia into the EU.
A duty of 6.50% will also be applied to oleic acids that are derived from palm oil from these countries into the EU.
European producers of palm fatty acids have long been accustomed to operating in an environment faced with competition from overseas imports, with many noting increasing numbers of buyers turning to suppliers from these countries in order to source cheaper material.
However, news of the introduction of these taxes has come as a welcome relief to European fatty acid producers, with many foreseeing suppliers in these countries having no choice but to pass these additional costs onto European buyers, should they choose to purchase from overseas.
“This will certainly work to our advantage,” one European-based producer said.
“We will start to feel some relief…most likely taking effect in Q2,” another said.
Buyers also agree that the duties will make purchases from overseas less enticing.
“Of course, the duties will make material from this region less attractive… this will certainly show during the first half of 2014,” one buyer said.
One trader noted more activity in the spot market than usual during the fourth quarter, with European buyers importing fatty acids before the implementation of duties in 2014.
He believes that fewer volumes may be consumed by these participants in the first quarter of 2014 as a result.
“Activity is likely to be lower than usual during the early part of 2014, as the market adjusts to these new costs,” the trader added.
Although this news has come as a welcome relief to many producers, some are uncertain as to how things will develop.
One producer believes the introduction of duties on palm oleic fatty acids will place European producers at a competitive advantage, but remains unsure about palm stearic fatty acids.
“European producers are disadvantaged when purchasing palm stearin as Asian producers can already source this much cheaply than us,” he said.
He believes palm stearic acid offers from both regions may be more in line with each other once the new taxes have been implemented as a result.
With palm oil feedstocks still trading at high levels after the impact of typhoon Haiyan, and raw tallow feedstock material remaining at stable levels of late, many market players believe tallow fatty acids may become the more competitive choice for buyers who have the freedom to switch between the two.
“We have already seen a narrowing of the price spread [between palm and tallow-based acids]…this may continue to be the case next year,” another buyer said.
Sources are in agreement that there will be fewer imports from the Asian market, with the European market shifting towards locally produced fatty acids.
The question remains, however, over whether European output can supply the growing demand that is expected to take place now the duties are in force.
Many anticipate that buyers will still be forced to bear the brunt of the rising prices from overseas imports.