Malaysia to gain from Indonesia’s palm oil export ban

Malaysia stands to gain from Indonesia’s move to impose an export ban on palm oil to tackle rising domestic cooking oil prices.

Indonesia, which accounts for more than half of global palm oil supply, will effectively ban palm oil exports beginning April 28 until further notice, after President Joko Widodo announced a halting of shipments of cooking oil and its raw material to control soaring domestic prices.

Public Investment Bank Bhd (PublicInvest Research) cited the move as surprising and came amidst heightened concerns over tightening global vegetable oil supplies.

In response to the unexpected measure, soybean oil prices soared to a record high of US$1,795 per metric tonne (MT) and palm oil futures rose RM36 to RM6,349 per MT.

To note, the Indonesian government has set a cap of 14,000 rupiah per litre for bulk cooking oil but Trade Ministry data showed that it was sold at more than 18,000 rupiah this month, indicating that there is significant shortage of crude palm oil (CPO) supplies for domestic cooking oil processing as local refiners need to source for CPO at higher price.

“The unexpected move is negative news for vegetable oil consumers in many countries, which currently depend on palm oil in view of shortages in sunflower oil, rapeseed oil and soybean oil,” PublicInvest Research commented on the matter.

“Indonesian palm oil exports made up about 57 per cent of global palm oil exports and 32 per cent of global vegetable oil exports. With the palm oil export ban, global vegetable oil prices are likely to rise in the near-term.

“Malaysia, being the second largest global palm oil producing country, is set to benefit as most of the palm oil importers will shift their demand from Indonesia to Malaysia.”

With the export ban, the research house said there is little to no room for upstream plantation players to bargain for higher prices with the refiners.

“Based on the latest combined CPO export tax and CPO excise levy of US$575 per MT (about RM2,415 per MT) coupled with the CPO export tax of RM474 per MT in Malaysia, we think Indonesian is currently trading at a steeper discounted CPO price RM4,800 per MT compared to Malaysia’s RM6,773 per MT,” it explained.

“Malaysian plantation players with strong exposure to the Indonesian market — such as Genting Plantation Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd and TSH Resources Bhd — would not be able to fully capture on the current strong CPO price performance due to the hefty export duties and zero export policy in place.”

On Sunday, Deputy Minister of Plantation Industries and Commodities II, Datuk Seri Dr Wee Jeck Seng expected the move to boost CPO prices and competing oils in the international market since Indonesia is a top producer and exporter of palm oil.

He said last year, Indonesia’s palm oil accounted for 59 per cent and 56 per cent of the world’s palm oil production and exports, respectively, adding that Indonesian palm oil exports represented 30 per cent of total world oils and fats exports.

“As such, this drastic step taken by Indonesia will definitely have a massive impact on other countries, especially major palm oil importers such as China, India and the European Union.

“Since Malaysia is the world’s second-largest producer and exporter of palm oil, Indonesia’s move is expected to increase export demand for the Malaysian palm oil,” Wee said to reporters after attending the Tanjung Piai parliamentary constituency’s breaking of fast event on Sunday.

However, Wee forewarned that as the local palm oil production is currently being affected by the ongoing labour shortage issue, it may be difficult for Malaysia to fulfil the high export demand gap left by Indonesia.

“This imbalance in demand and supply would see prices of palm oil and other competing oils soaring,” he added.

According to Wee, the rising export demand would pose a challenge for the local palm oil downstream industry as the competition for the supply of palm oil raw materials would intensify.

“However, the export tax policy of crude palm oil, crude palm kernel oil and processed palm kernel oil is expected to play a role in protecting the supply of palm oil raw materials for the local downstream industries,” he said.

Source: The Borneo Post