Indonesia’s palm oil export ban seen short-lived on limited storage

Indonesia’s ban on palm oil exports is unlikely to last more than a month as Jakarta has limited infrastructure to store the surplus oil and the country faces mounting pressure from buyers to resume shipments, industry officials said.

The world’s top palm oil exporter announced plans to ban exports on Friday, April 22, in a shock move that lifted prices of all edible oils and sowed confusion and alarm among palm oil exporters and consumers alike.

Market panic subsided on Monday, April 25, after officials told palm oil executives the ban will only apply to exports of refined, bleached, and deodorized (RBD) palm olein starting on Thursday, April 28, and would not affect flows of crude palm oil or other forms of derivative products.

However, Jakarta will widen the ban “if there is a shortage of refined palm oil,” according to a presentation the government gave to companies on Monday.

RBD palm olein accounts for around 40% of Indonesia’s total exports of palm oil products, according to analysts’ estimates.

The prospect of further tweaks to export restrictions has caused jitters among Indonesian palm oil producers and processors who typically export over twice as much palm oil as is consumed domestically.

“Based on simple calculation, even before one month, all the tanks would be full if it’s a total ban,” said Eddy Martono, secretary general of GAPKI, Indonesia’s biggest palm oil association.

Once tanks run out of space, mills can’t process the fresh fruit bunches, which would rot and force production to drop, Martono told Reuters.

Indonesia is now holding around 5 million tons of palm oil stocks, and the country’s storage capacity of around 6 million to 7 million tons would be full by the end of next month, said a Singapore-based dealer with a global trading firm.

Indonesia produces around 4 million tons of palm oil every month and consumes around 1.5 million tons.

In 2021, Indonesia consumed 18.4 million tons of palm oil out of total production of 51.3 million tons, GAPKI estimates.

“As the domestic cooking oil market is not enough to absorb all the production, a more extended ban may hurt the industry, particularly the smallholders,” said Carolyn Lim, senior manager, corporate communications at Musim Mas, a palm oil producer with plantations in North Sumatra.

Musim Mas estimated the ban could last a few months, instead of a few weeks, if it had covered a wider range of palm oil products.

Fresh fruit bunch prices have already dropped by between 400 rupiah and 1,000 rupiah per kilogram since the announcement, from 3,700 to 3,900 per kilogram, Mansuetus Darto, secretary general of Indonesia’s Oil Palm Farmers Union, said in a statement.

“The ban is a political decision to support consumers. But if the government keeps it for a longer period, then farmers will suffer,” said a Mumbai-based vegetable oil dealer with a global trading firm.

Buyers of Indonesian palm oil have already voiced complaints about its export policies and will ask Jakarta to review the policy, said Rasheed JanMohd, chairman of the Pakistan Edible Oil Refiners Association.

”It’s time for Indonesia to cut down use of palm oil for biodiesel and remove the ban. If Indonesia continues the ban, then we would ask the Pakistan government to speak to the Indonesian government to restore supplies,” JanMohd said.

India, the world’s biggest palm oil importer, has requested Indonesia to increase supplies. – Rappler.com