Planters brace for impact from Indonesia’s moves

PETALING JAYA: Palm oil producers and exporters, including Malaysian plantation companies with operations in Indonesia, are bracing for the full impact from the reimposition of the republic’s domestic market obligation (DMO) and domestic price obligation (DPO) on palm oil.

As at press time, the Indonesian authorities still have yet to reveal details on the DMO and DPO, particularly on the sales volumes and price obligation set for palm oil producers there.

According to CGS-CIMB Research, the DMO and DPO details could be out within the next few days.

Previously, the DMO rules required all palm oil exporters to sell 20% to 30% of their planned exports in the domestic market at a maximum price of 9,300 rupiah (RM2.79) per kg for crude palm oil (CPO) and 10,300 rupiah (RM3.09) per kg for palm olein.

The CPO price under the DPO then was at a 34% discount to the current CPO price of 13,985 rupiah (RM4.19) per kg in Indonesia.

In its latest report, CGS-CIMB Research opined that the potential impact on palm oil producers will depend on the volume and price obligations set by the Indonesian authorities.

“The plan to reimpose the DMO rules came as a slight surprise to us because the government had previously lifted the 30% DMO in favour of higher export levy on March 18.”

News on the DMO reimposition came in one day after Indonesia’s move to lift its palm oil export ban on May 23.

Due to lack of details on the reimposition, CGS-CIMB Research said: “It is too early to conclude how the DMO will impact the market or palm oil players.”

Indonesia’s plan is to make sure that 10 million tonnes of cooking oil remains in the country, which is one million tonnes higher than its total palm oil consumption of about nine million tonnes for food purposes in 2021 based on GAPKI or the Indonesian Palm Oil Association statistics.

Indonesia’s policy enforcement is essential to ensure its domestic cooking oil supply is met, the research house said, adding that “If the policy implementation is improved from the previous ruling for palm oil producers and exporters, we expect the potential disruption to exports to be minimal.”

Another key area to watch is how the Indonesian government determines the size and price of the DMO for palm oil producers and the mechanism to improve the distribution of cooking oil in Indonesia to ensure sufficient supply.

“Should the Indonesian government require CPO producers to sell 20% of their production at 9,300 rupiah (RM2.79) per kg in the domestic market, the likely negative impact to their average CPO price would be around 937 rupiah (RM0.28) per kg from the current levels,” explained CGS-CIMB Research.