Indonesia policy uncertainty hampers resumption of palm oil exports

People shop for cooking oil made from oil palms at a supermarket in Jakarta, Indonesia, March 27, 2022. REUTERS
Indonesia allowed a resumption of palm oil exports from Monday after a three-week ban, but shipments were not expected to get underway until details emerge on new rules aimed at securing domestic supplies of the edible oil.

The Southeast Asian country, the world's biggest palm oil producer, halted exports of palm oil from April 28 in an attempt to bring down soaring local prices of cooking oil, rattling global edible oil markets already struggling with sunflower oil supply shortages due to the war in Ukraine.

President Joko Widodo announced the lifting of the ban on exports of crude palm oil and some derivative products last week, expressing confidence that bulk cooking oil prices were heading towards a target level of 14,000 rupiah ($0.9546) per litre, even if they were currently higher in some areas.

Palm oil, used in everything from margarine to shampoo, comprises a third of the world's vegetable oil market, with Indonesia accounting for about 60% of supply.

To ensure supply security, Indonesia said it will impose a so-called Domestic Market Obligation (DMO) policy, whereby producers are required to sell a portion of their products locally at a certain price level.

Indonesia plans to retain 10 million tonnes of cooking oil supplies at home under the DMO rules, Chief Economics Minister Airlangga Hartarto said, adding their implementation will be regulated by the Trade Ministry.

Traders were on Monday waiting for details on the DMO and other rules to be made public.

"Sellers are first trying to clear pending quantity that was stuck because of the ban. They are accepting new orders as well, but demand is not great," said a Mumbai-based dealer with a global trading house.

"They are also not too keen to sell a lot before understanding DMO rules," added the trader.

A Jakarta-based company, which did not want to be identified due to the sensitivity of the matter, said it was also waiting for details of the rules before embarking on shipments.

A senior trade ministry official did not respond when contacted by Reuters seeking details.

Partially reflecting the Indonesia policy uncertainty, palm oil futures FCPOc3 from rival supplier Malaysia climbed 1.67% on Monday.

Asked whether palm oil producer Musim Mas had resumed exports, spokesperson Carolyn Lim said the company was still focused on "flooding the domestic markets with cooking oil to hopefully reach the target retail price", noting the Indonesian government was still concerned about the high retail prices.

As of Friday, the average price of bulk cooking oil was at 17,000 rupiah per litre, Trade Ministry data showed.

Some farmers, though, cheered the ending of the export ban.

Last week, farmers staged rallies across Indonesia to protest a 70% drop in prices of palm fruit as refiners stopped accepting supplies because palm oil storage filled up.

"There are no more long lines at palm oil mills," said palm oil farmer Irfan, who said palm fruit prices in his area of West Sulawesi had started to stabilise.