Palm oil price rallies as Indonesia dilly-dallies on revoking export ban
B- Trams May 27, 2022 : Jakarta yet to fix domestic market obligations for exporters, puts trade in a tizzy
Palm oil prices have increased by 4.5 per cent on Bursa Malaysia Derivatives (BMD) Exchange till now since May 19 when Indonesia announced revoking its ban on the export of crude palm oil (CPO) and refined, bleached deodorised (RBD) palm oil as shipments are yet to begin.
Uncertainty grips the palm oil market over the domestic market obligations (DMO) that Indonesia said it will impose to allow palm oil exports. The trade is waiting for a clear picture, said traders and analysts.
A Reuters report earlier this week said Indonesia will remove subsidy on bulk cooking oil after May 31 and replace it with domestic price obligation on its raw materials.
According to Abdul Hameed, Director (Sales), Manzoor Trading in Lahore, Pakistan, the Indonesian government is ready to allow one million tonnes (mt) of palm oil for companies that had earlier entered into an agreement with the government through an online portal (SIMIRAH).
This time, they could be allowed to ship palm oil provided they meet the domestic obligation by supplying one tonne for every three or five tonnes export permit they seek.
In view of this uncertainty, crude palm oil August contracts on BMD closed at 6,351 Malaysian ringgits on Friday ($1,450.33) a tonne against 6,094 MYR ($1,391.64) on May 19 when Indonesia announced revoking the export ban.
Indonesia’s dilly-dallying on allowing palm oil exports led to global edible oil expert and Godrej International Ltd Director Dorab Mistry writing an open letter on Thursday to immediately resume palm oil exports.
He said allowing palm oil exports was a must to save Indonesian smallholder farmers who were facing a calamity. Record stocks, full storage tanks with producers, the boom cycle in production, poor demand and export curbs spell almost “certain doom” for the Indonesian farmer, the Godrej International director said.
“Indonesia’s policy is still a puzzle for traders and they are waiting for more clarity. The DMO could be hard for corporates to meet and complicated too,” said Hameed.
Malaysia’s rising exports
Palm oil prices were ruling high due to tight supply, rising demand and low production, particularly in Malaysia. “Reports of Shanghai opening up after the lockdown to tackle Covid have also lifted the market as China’s palm oil stocks are at five-year low,” the Lahore-based firm’s official said.
After dropping 1.5 per cent on Wednesday, the market increased on Thursday following Malaysian export data before paring part of its gains on Friday. According to SGS, Malaysia palm oil exports were up nearly 24 per cent at 1.11 mt during May 1-25 compared with 0.89 during the same period a month ago. Another surveyor, Amspec, pegged 22.54 per cent higher exports, while ITS estimated shipments were higher by almost 25 per cent.
India’s duty-free move
However, palm oil is coming under pressure from India’s decision to allow duty- and cess-free imports of 2 mt of crude soyabean and sunflower oils each annually this fiscal and next.
Analysts said some buyers were exiting palm oil contracts to purchase competing edible oils such as soyabean and sunflower. According to the Solvent Extractors Association of India (SEA), the landed price of CPO currently is $1,765 a tonne, while RBD palmoleing’s cost is $1,800. Sunflower oil’s costs $2,100 and degummed soyabean oil $1,836.
Traders said after India decided to allow imports of soyabean and sunflower oils duty-free on Tuesday, Argentina’s soyabean oil witnessed some hectic selling. On Wednesday, at least 25,000 tonnes of soyabean oil had changed hands for loading in June.
Hameed said the current year will be bullish for edible oil, particularly due to shortage of funds and dry weather in Latin America besides the Russia-Ukraine war.
“I think palm oil prices will rule between 6,000 and 7,000 MYR, though India’s duty-free decision will hurt the commodity. Uncertainty will continue in the market over the next 1-2 months,” he said.