Indonesia’s plan to limit palm oil exports has upended the global edible oil market by making what is the traditionally cheapest vegetable oil the costliest among the three major edible oils traded across the world.
Indonesia, the world’s biggest palm oil producer and exporter, last week announced a 20% mandatory domestic market obligation (DMO) for all palm producers.
The Indonesian parliament proposed the DMO for palm oil in a bid to stabilise cooking oil prices.
Palm oil’s average retail price stood at 20,000 rupiah ($1.39) per litre despite market operations to roll out affordable cooking oil prices at 14,000 rupiah per litre.
“Among commodities, cooking oil was the highest contributor to Indonesia’s inflation in 2021,” Raden Rami Ramdana, analyst at Bahana Sekuritas, said.
The move lifted Malaysian palm oil futures to a record high of 5,639 ringgit ($1,346.47) per tonne on Friday.
The price rise is likely to prompt key buyers such as India, China, Pakistan and several African countries to shift to rival soybean and sunflower oils, which are available at a discount to palm oil for February shipments.
Weather, Labour Restrictions
“Indonesia’s exports curbs have changed market dynamics,” said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage and consultancy firm based in Mumbai.
“Already, the edible oil market was disrupted by weather and labour issues. Government policies have now added to the uncertainty.”
Crude palm oil (CPO) is being offered at around $1,500 a tonne, including cost, insurance and freight (CIF), in India for February shipments, compared with $1,490 for crude soybean oil and $1,460 for crude sunflower oil, traders said.
India is the world’s largest edible oil importer. A year ago, palm oil was trading at a discount of around $100 and $250 per tonne to soy oil and sunflower oil respectively, both perceived to be of higher quality than palm oil.
Buyers have started shifting to soy oil and sunflower oil for February and March shipments, said a Mumbai-based dealer with a global trading firm.
“Palm’s rally is doing demand destruction. Prices need to come down or it will lose market share,” the dealer said.
- Reuters, with additional editing by George Russell
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