Indonesia tightens palm oil export curbs in new hit to global supplies

A palm oil plantation is pictured next to a burnt forest near Banjarmasin in South Kalimantan province, Indonesia, September 29, 2019. REUTERS/Willy Kurniawan

  • Summary
  • Companies must sell 30% of planned exports at home for 6 months
  • Consumers facing high prices, daily quotas for cooking oil
  • Global veg oil supplies squeezed by Russia’s invasion of Ukraine
  • Palm supply could be down by 100,000 T/month -analyst

JAKARTA, March 9 (Reuters) – Indonesia will further restrict exports of palm oil from Thursday to increase domestic supplies, as authorities ramp up efforts to contain a surge in cooking oil prices, Trade Minister Muhammad Lutfi said.

The world’s biggest producer and exporter of palm oil will require companies to sell 30% of their planned exports of crude palm oil and olein at home, up from 20% currently, under a scheme known as Domestic Market Obligation (DMO). The new restriction will stay in place for at least six months.

The tightening of restrictions will remove more vegetable oil from a global market already suffering a squeeze in supplies after Russia’s invasion of Ukraine, which is a key global supplier of sunflower oil.

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“We increase this DMO to ensure that all parts of the domestic cooking oil industry can function properly,” Lutfi told a news conference.

The increase to 30% would last for at least six months, “after which we can review whether it needs further expansion or adjustment,”he said.

Along with export volume restrictions, the government also set the maximum prices for CPO and olein sold to local refiners and put a cap on retail prices.

The latest policy changes could remove around 100,000 tonnes of palm oil per month from world markets, according to Anilkumar Bagani, research head of Mumbai-based vegetable oils broker Sunvin Group.

Malaysian benchmark palm futures surged by 10% after the announcement.

Indonesia first restricted exports in late January after prices of cooking oil – made from refined crude palm oil – rose more than 40% at the start of the year amid a surge in global prices.

Although the policy has increased supply at home, consumers have complained that cooking oil is still being sold at prices above the 14,000 rupiah ($0.9739) per litre cap in traditional markets, Indonesia’s Ombudsman said.

Meanwhile at supermarkets, cooking oil stocks are running out even with most retailers setting a two-litre quota per buyer. Some stores are even asking buyers to dip their fingers in ink, as is required during elections, to mark that they have purchased their daily quota.

Lutfi said authorities wanted cooking oil prices to be in line with the new cap before the start of Islamic fasting month of Ramadan in April.

Satria Sambijantoro, an economist with Bahana Securities, questioned whether the price controls would work effectively.

“From the supply-side, the price control would discourage manufacturers to produce cooking oil,” said Satria, who added that on the demand side consumers would be encouraged to hoard supplies and that could result in price inflation.

Lutfi said the new requirement would remain in effect until cooking oil is readily available at local markets and was not offered above a maximum retail price set by the government.

Indonesia’s biggest palm group GAPKI was “caught by surpise” by the latest move as the group had urged the government to keep regulations unchanged until after Ramadan, deputy chairman Togar Sitanggang told an industry conference in Kuala Lumpur.

Since Indonesia started restricting palm exports in late January, the trade ministry has issued permits to allow 2.77 million tonnes of exports, Lutfi said, estimating domestic sales at around 573,890 tonnes.

($1 = 14,375 rupiah)

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Additional reporting by Mei Mei Chu in Kuala Lumpur
Editing by Ed Davies, Kanupriya Kapoor and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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