Indonesia may widen palm export ban to combat local shortages

A worker shows palm oil fruit bunches during harvest at a plantation in Kampar regency, Riau province, Indonesia on April 26. Indonesia is prepared to widen its ban on exports of refined palm olein if it faces domestic shortages of derivatives used in the production of cooking oil, according to details presented at a meeting between government and industry officials.

Indonesia is prepared to widen its ban on exports of refined palm olein if it faces domestic shortages of derivatives used in the production of cooking oil, according to details presented at a meeting between government and industry officials. The world’s biggest palm oil exporter plans to halt shipments of refined, bleached and deodorised (RBD) palm olein but will allow exports of crude palm oil or other derivatives from Thursday, senior government official Musdhalifah Machmud, who verified the details presented, told Reuters. RBD palm olein accounts for about 40% of Indonesia’s total shipments of palm oil products, according to analysts’ estimates, which means the ban could significantly affect export earnings in Southeast Asia’s biggest economy. Indonesia typically exports about $2.5bn to $3bn of palm oil products per month. Authorities will strictly monitor domestic supply of refined palm oil and crude palm oil, which are used as raw materials to make RBD olein, according to presentation slides. “If there is shortage of refined palm oil, then further export bans can be carried out,” read the text on a slide shown to palm oil companies on Monday. RBD palm olein is extracted by crushing palm fruit and is then processed to remove impurities to create a material used in many products, including cooking oil and snacks. China, India, the Philippines and South Korea, source between 46% and 58% of their total palm oil imports from Indonesia, Nomura said in a research note, adding that China was the top buyer of Indonesia’s RBD olein. President Joko Widodo announced the ban on exports of cooking oil and its raw material on Friday to help control soaring domestic prices, but provided no details. The announcement has sent global edible oil prices soaring as supplies were already choked by other factors such as drought and shortages from Russia’s invasion of major crop producer Ukraine. Markets had previously thought the ban would cover a wider range of palm oil products, sending the rupiah and shares of Indonesian palm oil companies tumbling on Monday. The rupiah rebounded 0.3% on Tuesday, while palm company shares also gained. Malaysian benchmark crude palm futures, which had reversed gains after details of the ban emerged, rose 1.5% by 0900 GMT on Tuesday. Suhanto, secretary general of the trade ministry, said the government was preparing regulations on the export ban, but declined to divulge details. An official at Musim Mas, a Singapore-based private palm oil company, said while the smaller scope of the ban showed the government had considered the impact on the industry, it could also mean the ban may last longer. Some analysts, however, expect the ban to be temporary due to limited domestic palm oil storage capacity. The Indonesian government has been criticised by some analysts and politicians for erratic policymaking to contain the rise in cooking oil prices, having already implemented and revoked an export restriction this year. The government seeks to lower the price of bulk cooking oil to 14,000 rupiah per litre, government official Machmud said later on Tuesday. She did not respond when asked if the export ban will be lifted when the price target was reached. Bulk cooking oil was offered at about 20,000 rupiah per litre at online marketplaces on Tuesday. Approval ratings for Jokowi, as the Indonesian president is popularly known, dropped to 59.9% this month from 75.3% at the beginning of 2022, due to rising prices of necessities including cooking oil, independent pollster Indikator Politik Indonesia said. More than 60% of respondents in the survey, which was conducted before the export ban was announced, also supported halting cooking oil shipments. Students have held street demonstrations in several cities across the archipelago this month to protest against high cooking oil prices.