Market concerned over lesser PO exports from ID
3M FCPO jumped 2% to MYR5,444/t yesterday following announcement that the ID government will impose some export restrictions to reign high domestic edible oil prices. Details on the implementation and impact on ID growers/exporters are unclear at this juncture. But winners are clear – the relatively more MY-centric growers such as IOI, SOP, BPLANT, TAH, THP, HAPL, FGV. Stay POSITIVE on the sector. Preferred BUYs remain with KLK, SOP and BPLANT.
ID exporters to set aside 20% of shipments for DMO
According to media reports, Indonesia’s (ID) trade minister Muhammad Lutfi said that exporters must set aside 20% of their shipments for domestic market obligation (DMO). The rule took effect yesterday, 27
Jan. The ID government will cap prices of local CPO at IDR9,300/kg (USD0.67) and Olein at IDR10,300/kg. This move follows an earlier announcement requiring palm oil exporters to declare the palm oil (PO)
they plan to export and to obtain permits for the next six months. Meanwhile, the ID government will likely fund these subsidized cooking oil using the export levies collected. Between Jan and Nov 2021, it was reported that the ID government collected ~IDR69tr (USD4.8b) in export levies.
ID’s 2022 cooking oil demand expected to be 5.6mt
According to the Indonesian Palm Oil Association (GAPKI), ID exported ~28.3mt of palm oil (ie CPO + PPO) in 2020. Using this as baseline data, exporters must then set aside 5.66mt (20% of 28.3mt) of palm oil for the domestic market. This is broadly in line with the trade minister’s guided cooking oil demand in ID of ~5.6mt in 2022. We believe the move by the government is to ensure sufficiency of cooking oil ahead of the Raya festivities in early May this year.
MY growers are clear winners from this new rule
ID’s February exports may slow due to the new ruling as exporters obtain greater clarity and familiarize themselves with the new procedures. This, in turn, may benefit MY exporters in the short term, and be supportive of CPO price in the short term. Nonetheless, exports will likely normalize after initially teething issues.