Indonesia widens ban to include crude palm oil
Country accounts for about 45% of the 8.5 mt of palm oil India imports
In the latest flip-flop that could have a far reaching impact on Indian edible oil markets and prices, Indonesia on Wednesday widened the scope of its export ban on raw materials for cooking oil to include crude and refined palm oil, among other products, leaving global and Indian markets in a state of shock.
For India, one of the biggest consumers of Indonesian palm oil, the situation is back to square one barely days after it got some reprieve after Indonesia clarified that the ban would not include crude palm oil.
India imports around 1313.5 million tonnes (MT) of edible oils, of which around 63 per cent, or 8-8.5 MT, is palm oil. Of this, Indonesia accounts for about 45 per cent, and the rest comes from neighbouring Malaysia.
After last week’s announcement, Indian trade sources feared that if monthly supplies of around 300,000-325,000 tonnes of palm oil stop suddenly from May, there will be a sharp escalation in edible oil prices, which have been already on the boil due to the Russiaukraine war.
“Ever since the Russiaukraine crisis, India’s sunflower oil supplies have gone down from 200,00-250,000 per month to less than 100,000 tonnes per month causing a sharp spike in prices. On top of this if Indonesia decides to suspend palm oil exports, then it will cause serious trouble for us,” BV Mehta, director general of the Solvent Extractors’ Association of India (SEA), had warned.
Mehta wanted the Indian government to immediately activate its diplomatic channels to ward off this catastrophe.
Wednesday’s announcement by Indonesia flipped a statement made a day earlier, in which the government had said the export ban would only cover refined, bleached, and deodorized palm olein.
The change was “in line with the president’s decision and after taking into account the feedback and views from the people”, news agency Reuters reported, quoting Airlangga Hartarto, coordinating minister for economic affairs in Indonesia.
Affordable food
Indian trade sources feared that if monthly supplies of around 300,000325,000 tonnes of palm oil stop suddenly from May, there will be a sharp escalation in edible oil prices, which have already been on the boil due to the Russia-ukraine war
According to Reuters, Indonesian President Joko Widodo said in a separate statement that the people’s need for affordable food trumped revenue concerns for now.
“Once domestic needs have been met, of course I will lift the export ban because I know the country needs taxes...foreign exchange, a trade balance surplus, but meeting the people's basic needs is a more important priority,” he said.
Palm oil markets have been jittery ahead of the ban and Indonesia deployed navy ships and personnel in an effort to thwart illegal shipments.
Palm oil futures on the Malaysia exchange surged 9.8 per cent on Wednesday, as some market participants feared exporters in Indonesia, the world’s biggest palm oil producer, could not get their products onboard vessels in time before the ban starts.
US soyoil futures jumped more than 4 per cent to a record high after Indonesia extended the ban to include CPO.
“This is crazy. We are paying a price for Indonesia policy flip-flops. Every vegetable oil is going through the roof. Securing supplies of any vegetable oil for May shipments is a challenge,” said a New-delhi based dealer with a global trading firm.
1-month ban
Indonesia’s ban on palm oil exports is unlikely to last more than a month due to limited infrastructure to store the surplus oil and because of mounting pressure from buyers to resume shipments, industry officials said.
The ban would remain in place until prices of bulk cooking oil dropped to 14,000 rupiah ($0.9720) per litre, Airlangga said.
In Jakarta, bulk cooking oil prices were offered at around 19,000-20,000 rupiah ($1.32$1.39) on Wednesday and in other regions prices could be higher, Reynaldi Sarijowan, a senior official at the traditional market traders' association, said.