A relief for ID-based growers
The palm oil export ban is indeed short-lived as widely anticipated.
Indonesia (ID) is lifting the ban on 23 May despite the bulk cooking oil price
not reaching the targeted IDR14,000/liter. This follows protest by
smallholders who suffered the most during the ban. On the ground, we
hear the ID government is mulling alternative measures to ensure the
sustainability and availability of subsidized cooking oil over the long run.
With the ban lifted, we expect international CPO price to soften. Stay
NEUTRAL on the sector. Preferred BUYs are KLK, IOI and BAL (added).
ID exports to resume on 23 May
President Jokowi announced ID can resume the exports of palm oil on 23
May (Monday), barely a month after it banned the exports of palm oil on
28 April. The decision took into consideration the improvement of local
supply of palm oil and prices, and the welfare of 17 million workers in the
industry. According to Trade Ministry data, the bulk cooking oil price was
IDR17,100/liter as at 18 May which is still 22% above the targeted
IDR14,000/liter price set by the government. Just days ago, smallholders
protested against the government’s ban as they suffered big drop in FFB
selling prices of up to 70% (as reported in the media) compared to before
the ban. Not only did the price drop, some millers were even reluctant to
buy their FFBs as they fear their storage tanks will soon overflow with no
option to exports (given the limited domestic consumer market).
ID domestic CPO price dropped 20% since the ban
While smallholders suffered big drops in FFB prices, the CPO price
transacted in the market were not as bad as corporates have storage
capacities to keep 1-2 months of monthly output. After President Jokowi
announced the export ban on 22 April, there was a period of no
transactions (between 23 Apr and 9 May) in the domestic market amid the
confusion (but in part due to the long Raya festivities). According to the
latest published prices, the transacted domestic CPO price has fallen to
IDR13,031/kg on 18 May (or MYR3,910/t) which was -20% lower than the
price before the ban (Fig.1). In the meantime, the price gap between MY
and ID widened to MYR2,784/t (Fig.2; previously ~MYR1,800/t).
Expect global CPO price to soften with the ban lifted
During the ban period, we believe ID’s palm oil inventory has likely added
~2mt of palm oil (March’s stockpile estimate by GAPKI: 5.68mt). There is
concern that the ID ports will be congested when exports resume next
week. Hence, it may take weeks before stockpile normalizes again. With
the lifting of the ban, we anticipate the CPO price gap between MY and ID
to gradually narrow to MYR2,533/t to reflect the maximum CPO export
taxes applicable at current price (ie ~USD575/t) given the ample supply of
CPO in the domestic market. As for international buyers, the availability
of ID palm oil will somewhat pressure international CPO price. Overall, the
lifting of export ban is a relief to ID-based growers (ie. SGX and IDX listed
growers are winners) while MY-based growers (ie relative losers – see Fig.3)
will overnight lose their advantages as the main supplier of palm oil.