Indonesia has recently reversed its policy of banning palm oil export to one that now will continue, the world’s largest palm oil producer will lift the ban after President Jokowi instructed his Ministers that the country can cope with its domestic situation and should instead look at attracting revenue into the country.
Malaysia which is the second-largest exporter of the produce was temporarily elated with the ban which would then make the demand for the oil go up and local producers would then be able to reap from the high demand. However, with the sudden flip flop, there was concern about the impact it would leave on Malaysian palm oil.
According to the Ministry of Plantation Industries and Commodities, the moves made by Indonesia are not of concern to local planters both small and large stakeholders. While a knee-jerk correction in palm oil price is inevitable given such a move will somehow ease concerns over vegetable oil supply, MPIC does not expect a big downward adjustment to CPO prices as the market is well aware that this ban was always going to be temporary. Moreover, the recent weakening of crude palm oil prices could have already factored in this possibility. In fact, MPIC says the analysts expect Malaysian planters to be the largest winners in the long run as they are able to sell their CPO at high spot prices which should translate into a higher profit margin in 2Q 2022 coupled with higher production year-on-year (y-o-y) and quarter-on-quarter (q-o-q).
While the export ban lifting is a big relief to Indonesia planters, they had certainly missed out on the high CPO price period (February-April 2022) when Indonesia’s palm oil prices were trading at a larger discount to Malaysia with all the export control policies put in place in late-January 2022.
Minister Datuk Hajah Zuraida Kamaruddin adds that Indonesia’s policies could well work to Malaysia’s advantage as the world’s second-largest palm oil producer, given this would enable it to emerge as a dominant supplier to India which is the world’s top buyer of The edible oil. The combination of Malaysia’s lower export taxes and the Indonesian ban may mean Indonesia’s share of palm oil exports to India will fall to 35% in the current marketing year ending on Oct 31 from more than 75% a decade ago, according to an estimate from the Solvent Extractors’ Association of India (SEA), a vegetable oil trade body.
In the first five months of the 2021/22 marketing year, India bought 1.47 million tonnes of Malaysian palm oil compared to 982,123 tonnes from Indonesia, data compiled by SEA showed. Trader estimates for May show India imported around 570,000 tonnes of palm oil with 290,000 from Malaysia and 240,000 from Indonesia. Above all else, MPIC believes that CPO prices will remain at elevated levels going forward given the output uncertainties on major oilseeds (such as soybean, corn, grapeseed, and sunflower seed) either due to geopolitical tensions or unfavourable weather.
Lastly, even as Indonesia would resume its palm oil exports on May 23 (Monday) – barely a month after imposing the ban on April 28 – it may not end there given palm oil prices in its domestic market have yet to come down to the desired level (in fact, lifting of the ban could result in a recurrence of domestic shortage in the country).
