Indonesia to suspend palm oil export permits

Indonesia will suspend some palm oil export permits to secure domestic supply amid rising cooking oil prices ahead of upcoming Ramadan, senior cabinet minister Luhut Pandjaitan said on his official Instagram account on Monday.

Palm oil exporters had accumulated large shipment quotas last year and they now had little incentive to supply the domestic market, he said.

Indonesia issues export permits for palm oil companies that have already sold a proportion of their products to the domestic market, under a policy known as Domestic Market Obligation (DMO).

The DMO currently allows export volumes that are six times what companies have sold at home.

"Exporters can use those export rights after the situation has calmed," said Luhut, Coordinating Minister for Maritime Affairs and Investment.

Firman Hidayat, an official at the same ministry, said about a third of existing export quotas could be used now, while the rest could be used after May 01, 2023.

He added exporters were holding around 5.9 million tons worth of export permits at end of January.

Exporters could increase their quota when they raised supplies to the domestic market, he said.

Retailers have complained that cooking oil packages at lower prices have been hard to procure and they have been forced to sell them above the regulated price of 14,000 rupiah (US$0.93) per litre.

The Trade Ministry last month said palm oil companies had been ordered to increase domestic supply to 450,000 tons per month until April, up from roughly 300,000 tons per month previously.

Food prices typically rise ahead of the Islamic month of Ramadan and the Eid al-Fitr celebration which falls in April this year.

Sahat Sinaga, chair of the Indonesia Palm Oil Board, said companies have been holding back exports, due to lower global market prices and high export levies. With little urgency for exports, companies were also not encouraged to meet their DMO.

Malaysian benchmark palm oil prices have fallen more than 40% since reaching a peak last year. Meanwhile, Indonesia resumed imposing export levies in November.

Sahat blamed distributors for the tight supply in the domestic market.

"This is a difficult situation, but everybody must work together. Distributors should not take advantage of the situation," he said.

Rattling global edible oil markets, Indonesia last year banned exports of palm oil used in everything from margarine to cosmetics and fuel for three weeks due to soaring cooking oil prices.

But palm oil prices have since fallen back sharply to stabilize at lower levels as the outlook is now less certain with energy prices off their highs and fears over a global recession.

Malaysia's palm oil futures market was closed on Monday for a public holiday.

Indonesia plans using B35 biodiesel beginning 2023

Indonesia may start implementing a program to use biodiesel with 35% blend of palm oil-based fuel, known as B35, from January, 2023, a senior energy ministry official said on Friday.

Currently the world's top palm oil producer, Indonesia uses B30, containing 30% palm oil-based fuel. The overall palm oil-based fuel allocation for 2023 is estimated at around 13 million kilolitres in 2023, he said. Indonesia's 2022 allocation was 11.03 kilolitres.

Indonesian President Joko Widodo told his cabinet earlier this week to prepare the mechanism to implement B35 amid expectations that the crude oil price would remain high next year.

"The B35 policy is taken in anticipation of rising world oil prices and to reduce imports, while on the other hand this policy also aims to increase the use of renewable energy," ministry official Dadan Kusdiana said.

Southeast Asia's largest and most populous country is among the region's top importers of fuel, but authorities said import bills have been slashed significantly since Indonesia started expanding the portion of palm oil in biodiesel.

The expectation of B35 implementation helped palm oil prices in Malaysia higher, although some market participants were disappointed the blend would be lower than the anticipated 40%.

The energy ministry has been running trials for biodiesel containing 40% of fuel made using palm oil.

"Ten out of 12 of the vehicles tested had completed the road test with no significant issue and next we will determine the specification for B35 biodiesel," Dadan added, referring to the B40 trials.

“Hopefully, the B35 program can be implemented starting January 2023."

Indonesia is testing two formulation of B40, the first is a mix of diesel with 40% fatty acid methyl esters (FAME) and the second a mix of diesel with 30% FAME mixed with 10% green diesel made of refined, bleached and deodorized palm oil (RBDPO).

 

Indonesian palm oil export ban sparks concerns in many countries

Reportedly, the prices of all types of edible oils such are expected to rise after Indonesia announced a surprise ban on export of palm oil. Major edible oils are already in short supply due to adverse weather and Russian invasion of Ukraine.

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.