Its domestic industry faces chaos with storages overflowing, farmers stopping production
Indonesia will likely be forced to lift its ban on palm oil exports—both crude (CPO) and refined, bleached deodorised (RBD)—by the end of this month as its policy has resulted in total chaos in the local edible oil industry.
Besides, the Joko Widodo government has been unable to achieve its target of bringing down the packaged edible oil price to 14,000 Indonesian rupiah (₹74.50 approximately) a litre. Indonesia’s ban, which came into force on April 28, has also upset some of the importing nations such as India and Pakistan with the former raising the issue at the World Trade Organisation (WTO) last week.
Domestic prices above target
“The Indonesia ban on palm oil has resulted in chaos within that country. Domestic prices are ruling at 17,000 rupiah (₹90.25) a litre while in bigger States such as Riau, Sumatra and Kalimantan they are priced at 23,000 rupiah (₹122.25). The Indonesian government’s target has not yet been achieved,” said Abdul Hameed, Director (Sales), Manzoor Trading in Lahore, Pakistan.
The Indonesian government, in its order issued on April 28, said cooking oil prices would have to drop to 14,000 rupiah before the ban on crude palm oil and RBD palm oil could be revoked.
This has resulted in many edible oil-producing companies stopping the procurement of oil palm fresh fruit bunches (FFB) from growers. In turn, farmers have stopped harvesting FFB, hoping the Widodo government will revoke the ban. “There is a near panic situation there. Crude palm oil is overflowing in the storage tanks due to the ban. The factories that crush FFB to produce crude palm oil have slowed down production and no longer accept FFB,” Hameed said.
Malaysian tax cut move
Also, with Malaysia last week announcing a 50 per cent cut in the export tax there is a real threat of Indonesia losing out on its export markets. “India and Pakistani will take advantage of the cut in Malaysian export tax and Malaysian palm oil share will rise in both markets,” he said.
Reports said India and other importing nations are turning towards Malaysia in view of the Indonesian ban. The export tax has further boosted Malaysian export prospects.
Though crude palm oil price on Bursa Malaysia Derivatives Exchange increased immediately on Kuala Lumpur’s tax cut plans, it has begun to stabilise, analysts said. On Thursday, July crude palm oil contracts dropped by 148 Malaysian ringgits to 6,311 ringgits ($1,436.80) a tonne.
Palm oil prices have been heading south over the last couple of sessions in view of the Malaysian Palm Oil Board’s bearish data, they said. According to the board, palm exports dropped 17.73 per cent in April compared with March, while production increased 3.6 per cent. On the other hand, month-ending stocks in April increased by 11.48 per cent from March.
This has raised concerns over palm oil consumption, especially in China which cut its exports by half in April in view of the Covid shutdowns. The trade fears that the continuing shutdown in the Communist nation could affect palm oil shipments.
But Hameed said India and Pakistan could look at purchasing more palm oil ghee as their pipelines were running dry. “The marriage season is approaching and demand is set to increase in both nations,” he said.
The Lahore-based trading official is bullish on palm oil prospects as he expects Europe to buy more in view of the shortage in sunflower oil due to the Russia-Ukraine conflict.
“This month, Malaysia has got good numbers on the export front coupled with low production. This will improve market sentiments since inventories at the end of the month could be lower than in April,” he said.
The Indonesia ban on palm oil and supply shortage in sunflower oil has resulted in soyabean oil gaining. But the Covid pandemic leading to lower imports by China is holding the market on a leash.
According to Daniel Siqueira, weaker Chinese demand and a lower crop resulted in Brazilian soyabean exports dropping by 28 per cent in April.
According to the US Department of Agriculture, soyabean production this season to August is likely to be 350.72 million tonnes (mt) against 367.76 mt last season. Brazil, China and Argentina oilseeds production has been estimated lower this year with the US, India and other countries making up a part of the loss.
Overall, the USDA estimates global oilseeds production at 599.21 mt this season against 605.68 mt last season.
Analysts say this is one reason why traders feel an end to the Ukraine war is important to cool down edible oil prices in India and abroad.
Published on May 12, 2022