Indonesia Palm Oil Export Ban Will Be Short-Lived – Here’s Why

2022-05-28 17:17:12 By : Mr. Newben Yang

Indonesia’s palm oil export ban kicked in today, but a Gro analysis shows that the country’s limited storage infrastructure will force a halt to the ban in less than a month, if not sooner. 

The export ban comes as global inventories of several types of vegetable oils already are at some of their tightest levels in years , which has pushed prices steadily upward . The Russia-Ukraine war has driven further price gains as Black Sea sunflower oil exports are halted by the conflict.

Prices for palm oil , the most widely used edible oil, jumped 7.5% so far this week and are up 75% year over year. Soybean oil futures prices have been trading at record highs, and are up 27% from a year ago. 

Indonesia, the world’s biggest producer and exporter of palm oil , says the export ban is aimed at controlling rising domestic prices for palm-based cooking oil. Indonesia announced plans for the export ban last week, then scaled back the scope of products affected, and finally broadened the ban once again to include almost all palm oil and palm oil products. 

However, Indonesia will have difficulty finding storage for all the products that are blocked from export. Exports of palm oil and palm oil products typically average 2.3 million tonnes per month. Liquid storage tanks for palm oil products at ports are estimated to be able to store only up to 2 million tonnes overall for the entire country. 

Even assuming that the storage tanks are completely empty at the beginning of the export ban, which isn’t likely, the Indonesian government will be forced to relax the ban within 26 days, or by the fourth week of May, to keep the storage tanks from overflowing. 

Palm oil sellers could look to other storage options, such as finding additional storage capacity inland or on chartered vessels. More immediately, millers and refiners may need to sharply slow palm oil production and wait for local consumption to soak up excess supplies. However, a slowdown in production would increase pressure on the government from palm oil growers, more than half of whom farm on small plots of less than 2 hectares. 

Regardless of when Indonesia’s government decides to relax the export ban, Gro expects the move will lead to increased tightness of global palm oil supplies at least for the next two to three months, which will add further support to prices. 

In the US, a basket of vegetable oils commonly used by food manufacturers currently costs 42% more than a year ago, and has surged in price by 152% over the past two years, outpacing overall food inflation, according to Gro’s Custom Price Index Application . 

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