Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Indonesia palm oil export curbs, biodiesel plans to hit world vegoil supplies

Published 01/15/2023, 07:17 PM
Updated 01/15/2023, 07:20 PM
© Reuters. A general view of a palm oil plantation in Siak regency, Riau province, Indonesia, April 26, 2022. Picture taken with a drone on April 26, 2022. REUTERS/Willy Kurniawan

By Naveen Thukral and Bernadette Christina

SINGAPORE/JAKARTA (Reuters) -A move by top palm oil exporter Indonesia to restrict shipments and boost domestic biodiesel consumption is set to squeeze global vegetable oil supplies already undercut by lower output in Southeast Asia and Latin America.

Edible oil buyers, including price-sensitive consumers in South Asia and Africa, will bear the brunt of the supply-side constraints that come just as demand is forecast to climb, with China easing COVID-19 controls and India boosting purchases.

Indonesia's new restrictions are another challenge for food-importing countries hurting from last year's red-hot inflation, which pushed prices of key staples wheat, corn and soybeans to all-time or multi-year highs.

"The implementation of (the) B35 mandate in Indonesia in 2023 definitely changes (the) global palm oil SND (supply and demand) situation," said Oscar Tjakra, a senior analyst at food and agribusiness research at Rabobank.

"I'm now expecting global palm oil SND will be in a slight deficit."

Indonesia's B35 mandate, the highest in the world, stipulates diesel sold in the country from Feb. 1 has to contain 35% palm-based fatty acid methyl ester. By comparison, Malaysia has partially implemented a 20% biodiesel blending mandate and other countries have measures calling for single and double digit percentages of bio content for diesel or gasoline.

The Indonesia Biofuel Producers Association says the B35 mandate will take up 11.44 million tonnes in palm oil this year, up from 9.6 million in 2022 under the country's B30 measure.

Indonesia, producer of more than half of global palm oil supplies, also tightened trade rules this year, allowing exporters to ship just six times their domestic palm oil sales volume, less than a fourth-quarter 2022 ratio of eight times.

"Indonesian palm oil export definitely will drop, as output will decline, domestic consumption will increase," Fadhil Hasan, an Indonesian Palm Oil Association (GAPKI) official, told Reuters.

Indonesia produced 51.3 million tonnes of palm oil in 2022 and exported 33.7 million, GAPKI estimated. In 2023, palm oil output is expected at 50.82 million tonnes and exports 26.42 million, it said.

On Thursday, Malaysia said it could stop exporting palm oil to the European Union in response to a new EU law aimed at protecting forests by strictly regulating sales of the product.

Malaysian benchmark palm oil futures are expected in a range of 4,000-4,200 ringgit ($920-$970) per tonne this year, according to the Malaysian Palm Oil Board Director General Ahmad Parveez Ghulam Kadir.

That's lower than a record average of 4,910 ringgit in 2022, with prices skewed higher by disruption to edible oil supplies and distribution by Russia's invasion of Ukraine. But it's still comparatively high. Prices averaged 3,260 ringgit a tonne between 2018 and 2022.

On Friday, Malaysian palm futures were trading near a three-week low around 3,860 ringgit. [POI/]

Other threats to edible oil supplies include Argentina's worst drought in 60 years, which is forecast to cut its soybean output to 41 million tonnes, down from 48 million previously estimated.

STRONG DEMAND

India's palm oil imports in December jumped 94% from a year earlier to a record high as the product's higher discount to rival vegetable oils led refiners to boost purchases.

"Palm oil's discount to rival oils is around $300 a tonne, we expect this discount to narrow to around $200 by March," said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage.

"But India's strong demand for palm oil will continue as it is still the cheapest edible oil."

© Reuters. A general view of a palm oil plantation in Siak regency, Riau province, Indonesia, April 26, 2022. Picture taken with a drone on April 26, 2022. REUTERS/Willy Kurniawan

Palm oil purchases by China, the world's second-largest importer, are also expected to climb this year, after dropping sharply in 2022 because of Beijing's then strict COVID controls.

($1 = 4.3350 ringgit)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.