The move by Indonesia to pause exports has placed an extra
strain on cost-sensitive consumers in Asia and Africa hit by higher fuel and
food prices.
“Indonesia’s decision affects not only palm oil
availability, but vegetable oils worldwide,” James Fry, Chairman of Commodities
Consultancy LMC International, told Reuters.
Palm oil – used in everything from cakes and frying fats to
cosmetics and cleaning products – accounts for nearly 60% of global vegetable
oil shipments.
Top producer Indonesia accounts for around a third of all
vegetable oil exports. It announced the export ban on April 22, 2022, until
further notice, in a move to tackle rising domestic prices.
“This is happening when the export tonnages of all other
major oils are under pressure: soya bean oil due to droughts in South America;
rapeseed oil due to disastrous canola crops in Canada; and sunflower oil
because of Russia’s war on Ukraine,” Fry said.
Rasheed JanMohd, chairman of Pakistan Edible Oil Refiners
Association (PEORA) said, “Nobody can compensate for the loss of Indonesian
palm oil. Every country is going to suffer.”
Vegetable oil prices have already risen more than 50% in the
past six months as factors from labour shortages in Malaysia to droughts in
Argentina and Canada – the biggest exporters of soyoil and canola oil
respectively – curtailed supplies.
Buyers were hoping a bumper sunflower crop from top exporter
Ukraine would ease the tightness, but supplies from Kyiv have stopped as a
result of Russia’s invasion.
This had prompted importers to bank on palm oil being able
to plug the supply gap until Indonesia’s shock ban delivered a “double whammy”
to buyers, said Atul Chaturvedi, president of trade body the Solvent Extractors
Association of India (SEA).
Importers such as India, Bangladesh and Pakistan will try to
increase palm oil purchases from Malaysia, but the world’s second-biggest palm
oil producer cannot fill the gap created by Indonesia, Chaturvedi said.
Malaysia accounts for 31% of global palm oil supply, second after Indonesia’s
56%.
Indonesia typically supplies nearly half of India’s total
palm oil imports, while Pakistan and Bangladesh import nearly 80% of their palm
oil from Indonesia.
In February this year, prices of vegetable oils jumped to a
record high as sunflower oil supplies were disrupted from the Black Sea region.
A state-backed Malaysian palm oil group said countries
should pause or slow use of edible oil as biofuel to ensure adequate supply for
use in food, warning of a supply crisis following Indonesia’s ban on palm oil
exports.
Palm oil is also used as biodiesel feedstock. Indonesia and
Malaysia make it mandatory for biodiesel to be mixed with a certain amount of
palm oil – 30% and 20% respectively – and just last month said they remain
committed to those mandates, despite higher palm prices.
