Indonesia this week suspended the majority of its previously issued palm oil export permits in order to bolster domestic supplies and rein in rising cooking oil prices.
The move represents the latest turnabout in Indonesian government policy, which has veered from last year’s outright ban on palm oil exports, as Gro wrote about here, to subsequent efforts at encouraging increased shipments. Indonesia, the world’s largest producer and exporter of palm oil, typically ships about 2 million to 2.3 million tonnes of palm oil per month.
The new trade restrictions suspend through the end of April about two-thirds of the current palm oil export permits, which are needed to facilitate shipments out of the country. The balance of the permits can continue to be used during this period.
Export permits amounting to 5.9 million tonnes of palm oil were outstanding at the end of January, Indonesian officials have revealed. The suspensions mean that only about 1.97 million tonnes are able to be exported out of the country in the three-month period ending in April.
Indonesia’s government issued the permits last year on condition that exporters satisfy the “Domestic Market Obligation,” which requires them to allocate 6 tonnes of palm oil for domestic cooking consumption before they are issued a permit to export 1 tonne.
Domestic cooking oil prices have increased, and bulk cooking oil packages have recently been selling above the regulated price of 14,000 IDR (US$0.93) per liter. Producers complain that official prices are insufficient to cover production costs.
In global markets, however, palm oil prices have been subdued, having fallen more than 40% since reaching an all-time peak in May 2022 in the wake of Russia’s invasion of Ukraine. As a result, Indonesia’s palm oil sellers with export permits have held onto inventory to await improved pricing.
Palm oil prices on the Malaysia Bursa showed little reaction to Indonesia’s new export restriction. The front month FCPO futures contract closed Thursday at 3,974 ringgit per tonne, up less than 1% since Monday when the permit suspension was announced.
Palm oil import demand among major buyers has been slow, including from China, where import margins are negative, as seen in this Gro display. China also bought larger-than-usual volumes in the September to November 2022 period, which could be providing some stock buffer for the time being.