Palm Oil: Indonesia policy uncertainty hampers resumption of exports

Indonesia allowed the resumption of palm oil exports from today (Monday) after a three-week ban, but industry players said shipments were unlikely to restart until details emerge on how much of the edible oil must be held back for domestic use.

Indonesia, the source of 60% of the world’s palm oil, halted exports of crude palm oil and some derivative products on April 28, in an attempt to bring down soaring local prices of cooking oil. The ban rattled global edible oil markets at a time of supply shortages from the war in Ukraine.

Indonesia’s Trade Ministry on Monday issued rules stating that companies must obtain an export permit that would be granted only to those able to meet a so-called Domestic Market Obligation (DMO).

The regulation did not disclose details of what that DMO would entail, but said permits would be valid for six months and companies must report their shipments realisation monthly.

A DMO policy, whereby producers are required to sell a portion of their products locally at a certain price level, was used prior to the most recent ban as a means to try to ensure local supplies, but failed to tame cooking oil prices.

President Joko Widodo last week announced the ban would be withdrawn and expressed confidence that bulk cooking oil was generally heading towards the target price of 14,000 rupiah ($0.95) per litre.

Indonesia plans to retain 10 million tonnes of cooking oil supplies at home under the DMO rules, Chief Economics Minister Airlangga Hartarto said, adding their implementation will be regulated by the Trade Ministry.

Traders on Monday said they were awaiting details of the DMO rules.

“Sellers are first trying to clear pending quantity that was stuck because of the ban. They are accepting new orders as well, but demand is not great,” said a Mumbai-based dealer with a global trading house.

“They are also not too keen to sell a lot before understanding DMO rules,” added the trader.

The government met industry participants on Monday attended by the Coordinating Ministry of Maritime and Investment Affairs Luhut Pandjaitan, sources said.

Luhut has been tasked with ensuring supply and distribution of cooking oil in Java and Bali islands, his spokesperson said. He did not disclose what was discussed in the meeting.

“The objective is for bulk cooking oil to reach the price level targeted by the government, and to be evenly and amply distributed,” spokesperson Jodi Mahardi said in a statement.

Senior trade ministry officials did not immediately respond when contacted by Reuters seeking details.

Asked whether palm oil producer Musim Mas had resumed exports, spokesperson Carolyn Lim said the company was still focused on “flooding the domestic markets with cooking oil”, noting the government was still concerned about the high retail prices.

As of Friday, the average price of bulk cooking oil was at 17,000 rupiah per litre, Trade Ministry data showed.

Some farmers cheered the end of the export ban, having last week held demonstrations across Indonesia over a 70% drop in prices of palm fruit, as refiners stopped accepting supplies because palm oil storage had filled up.

“There are no more long lines at palm oil mills,” said palm oil farmer Irfan, who said palm fruit prices in his area of West Sulawesi had started to stabilise.