Indonesia lifts ban on palm oil exports
? We are not surprised by Indonesia’s decision to lift the palm oil export ban.
? This could lead to higher/lower CPO prices in Indonesia/Malaysia. Potential
winners are palm oil producers/refiners/exporters in Indonesia, importers of
palm oil from Indonesia and users of palm oil.
? Potential losers are Malaysian CPO producers and Indonesian consumers.
Indonesia to lift palm oil exports ban effective 23 May 2022
Indonesia will lift its palm oil export ban from Monday, 23 May, following improvements in
the domestic cooking oil supply situation, President Joko Widodo said on 19 May. Since
28 Apr, the world’s top palm oil exporter has halted shipments of crude palm oil (CPO),
refined palm olein and refined palm oil to try to tame soaring prices of domestic cooking oil.
The decision comes despite bulk cooking oil having not yet receded to the targeted
Rp14,000 per litre, as the government considers the welfare of 17m workers in the palm oil
industry, the president said. The President added that the supply of bulk cooking oil has
now reached a level greater than what the domestic market needed. “Average price of
(bulk) cooking oil before the export ban in April was Rp19,800 per litre and after the ban
the average price dropped to around Rp17,200 to Rp17,600 per litre,” he added. Indonesia
came up with the ban on exports of the widely used vegetable oil as a means of controlling
domestic prices, but pressures have been mounting to lift it, as farmers protested that there
was no demand for their palm fruits. To recap, Indonesia is the largest edible oil producer
and exporter, accounting for 56% of world exports of palm oil and 34% of world exports of
edible oils.
The lifting of the ban is highly anticipated by market
The lifting of the ban on palm oil exports is not a surprise as some market participants have
predicted this earlier. This is also in line with our prediction that the export ban is unlikely
to last more than a month because this will lead to potential storage and logistics issues in
Indonesia as fresh fruit bunches (FFB) harvested from the estates cannot be stored.
However, the President’s statement lacks specifics. As such, there could be more details
tomorrow on whether the lifting of the export ban could come with additional measures.
The other reason why we feel the export ban is likely to be lifted is due to the sharp fall of
prices of fresh fruit bunches (FFB) by up to 70% below a floor price set by regional
authorities. The smallholders group (APKASINDO) estimates that at least 25% of palm oil
mills have stopped buying palm fruit from independent farmers since the ban started,
indicating that storage tanks are filling up at mills.
Potential winners and losers from this event
We expect CPO prices in Malaysia to fall as this would ease the panic buying by consumers
and palm oil producers could shift their focus to exports from Indonesia instead of Malaysia
to fullfill backlog orders for the past 25 days (28 Apr to 23 May) and clear inventory in the
tanks. This news sent soybean oil prices lower by 1.5% at the point of writing, due to rising
export supplies from Indonesia. Potential winners from this ruling are palm oil producers
with estates and refiners in Indonesia (First Resources, Golden Agri, Astra Agro, London
Sumatra, TAPG, DSNG, Wilmar (65% of planted oil palm estates), Sime Darby Plantations
(33% of planted estates), KLK (54% of planted estates), Genting Plantations (73% of
landbank), IOI Corp (20% planted estates including associates)) and consumers of palm
oil around the world as this will ease shortages of edible oil supplies in the global market.
The potential losers from the lifting of the temporary export ban are palm oil producers with
estates in Malaysia like Ta Ann, Hap Seng Plantations, FGV, IOI Corp (80% of planted
estates including associates), Sime Darby Plantations (50% of planted estates in
Malaysia), KLK (40% of planted estates), Genting Plantations (26% of landbank), Wilmar
(26% of planted oil palm estates) due to weaker near-term demand for Malaysian palm oil,
following the lifting of the ban. Reiterate sector Neutral.