Indonesia to lift ban on palm oil exports from May 23, trade reactions vary

Indonesia, the world's largest palm oil producer and exporter, will lift a late April ban on the exports of palm oil products from May 23, President Joko Widodo said in a live broadcast, May 19.

"The national demand for cooking oil is 194,000 mt per month and in March before the export ban was imposed our supply was only 64,500 mt. But after the export ban, our supply reached 211,000 mt per month exceeding our monthly national needs," Widodo said.

The national average price of cooking oil also decreased from Rupiah 19,800/liter ($1.35/liter) to Rupiah 17,200/liter-17,600/liter, the President said, adding that the price of bulk cooking oil would fall over the next few weeks to the Rupiah 14,000/liter target they set as the supply is now abundant.

In January, Indonesia had instituted an obligation for palm oil suppliers to commit at least 20% of their production to ease domestic cooking oil prices and shortages. The quota was raised to 30% in early-March but the ruling was removed in favor of heavier export taxes at the end of the month.

Still failing to control runaway inflation, Jakarta stopped all palm oil exports since April 28. The quick shifts in policy left international buyers scrambling for alternative vegetable oil sources and pushed prices of other vegetable oils close to record highs.

While Indonesia typically consumes less than 40% of the 46 million-48 million mt of crude palm oil, or CPO, that it produces, domestic cooking oil prices have surged in the past year as local prices rose on the back of record surges in international vegetable oil markets through 2021.

Trade predictions

While the announcement has ended one of the biggest uncertainties in the palm oil market, "we will have to wait for more details," Anil Kumar Bagani, head of research at Mumbai-based vegetable oil brokerage Sunvin Group said.

Since supply lines from Indonesia dried up from April 28, large buyers such as India and China, and EU have resorted to demand rationing due to high prices, trade sources told S&P Global Commodity Insights.

The strong production numbers which added to the tank-busting stocks will open the flood gates for aggressive exports from Indonesia. "Prices [in Malaysia] will face headwinds and unless we can compete, upside for local prices will be capped," said Lingam Supramaniam, director with vegetable oil brokerage Pelindung Bestari at Port Klang Malaysia.

Indonesia, along with smaller rival Malaysia controls 85% of the global palm oil trade.

"We expect gradual narrowing down of supply demand gap and prices to descend in coming days. The incremental surplus after the export ban would weigh on the market sentiment with anticipated production upcycle in coming months to keep Indonesia stocks significantly higher than last year same period," Aditya Jeripotula, research head at Hyderabad-based TransGraph Ltd said.

There will be only a short-term immediate correction in the market ranging from MR15-40/mt after the lifting of the ban and an anticipated big downfall is unlikely, Siddharth Jain, senior world oil analyst, Agri World told S&P Global, adding that the market prices will remain supported by numerous physical contract that have been secured and are being sold by Malaysia at higher prices negotiated during the ban.

Protests around the ban

The May 19 announcement was preceded by peaceful demonstrations by oil palm farmers across Indonesia on May 17, demanding the export ban be revoked ban as the domestic prices of oil palm fruits known as Fresh Fruit Bunches, or FFBs, which is crushed and refined to produce crude palm oil, have plunged since the ban was announced.

About from 1,118 palm oil mills throughout Indonesia, at least 25% had stopped buying FFB from smallholder farmers, an oil palm farmer association Apaksindo said in an open letter to President Joko Widodo May 17.

The decision to lift the ban was also keeping in mind the 17 million workers in the palm oil industry, both farmers, workers, and other supporting staff, the President popularly known as Jokowi in the country said in his May 19 address.