Normalcy to return following Indonesia’s short-lived palm oil export ban?

EVEN as President Joko Widodo announced that Indonesia can resume the exports of palm oil on May 23 (Monday) – barely a month after imposing the ban on April 28 – the drama may not end here, reckoned RHB Research.

This is given further announcements from the Government can be in the pipeline since prices have still not come down to the desired level while lifting of the ban could result in domestic shortage recurring.

Some policy changes that have been considered include:

  • The raising of the ceiling price for bulk cooking oil to 17,000 rupiah (RM5.10)/litre;
  • The appointment of a government entity to buy controlled price olein from producers to ensure supply to the domestic market;
  • Potentially raising the export levy to set aside money specifically for cooking oil subsidies; and
  • Possibility of re-initiating the domestic market obligation (DMO) scheme with different parameters.

“Crude palm oil (CPO) and share prices may move in different directions from this news. While CPO prices could come off as a result of this news, share price of planters with Indonesian operations may rise,” projected analyst Hoe Lee Leng in a regional plantation sector outlook while reiterating a “neutral” outlook on the sector.

“We would use this opportunity to take some profit off the table given the continued uncertainty in Indonesia and potential increase in export levies which could harm profitability.

“Winners would be Indonesian and Singaporean planters as well as Malaysian planters with large Indonesian exposure (Kuala Lumpur Kepong Bhd and Genting Plantations Bhd).”

President Jokowi made the much anticipated announcement to lift the export ban yesterday (May 19) despite the bulk cooking oil price has yet to reach its targeted 14,000 rupiah (RM4.20)/litre. This follows protest by smallholders who suffered the most during the ban.

During the ban period, Maybank IB Research expects Indonesia’s palm oil inventory to have likely added circa 2 million metric tonne (MT) of palm oil (March 2022 stockpile estimate by the Indonesian Palm Oil Association (IPOA): 5.68 million MT).

“There is concern that Indonesian ports will be congested when exports resume next week. Hence, it may take weeks before stockpile normalises again,” opined Maybank IB Research analyst Ong Chee Ting.

“With the lifting of the ban, we anticipate the CPO price gap between Malaysia and Indonesia to gradually narrow to RM2,533/MT to reflect the maximum CPO export taxes applicable at current price (i.e. circa US$575/MT) given the ample supply of CPO in the domestic market.”

As for international buyers, the research house expects the availability of Indonesian palm oil to also somewhat pressure international CPO prices.

“Overall, the lifting of export ban is a relief to Indonesian-based growers while Malaysia-based growers will overnight lose their advantages as the main supplier of palm oil,” added Maybank IB Research. – May 20, 2022

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