Mumbai, 21 Mar (Commoditiescontrol):Indonesia's palm oil exports fell to the lowest in 8 months in February, dropping by 11.93% to 1.996 million tons due to a series of unfavourable export policies announced by the government. The continuous negative signals on exports, higher biodiesel mandates, and higher levies and taxes have culminated in depressing palm exports for four straight months, erasing one million tons month-on-month from November.
Exports have declined since November after the government revised its export levy and tax schedule, jumping to a high of US$118 in the second half of November 2022 and escalating further to a peak of US$169 by March. The levy and taxes alone made up 14-20% of the CPO reference price compared to 1-8% from August to October 2022.
February CPO exports contracted by 59.77% to just 101,792 tons from January to hit the lowest in 9 months as buyers shifted their sourcing from Indonesia to Malaysia and Thailand. As a result, the monthly shipment of CPO to India, the largest export market, fell significantly by 59.75% to just 70,000 tons compared to a monthly average volume of 300,000 tons. Soaring stocks in India were also partly responsible for the slowdown in buying from Indonesia.
However, refined palm olein exports rose by 9.64% to 900,360 tons, aided by strong volumes to China, gaining 26.02% and making up a third of the total olein volumes. China is the biggest RBD palm olein buyer in the world, but the largest palm buyer in the world, India, saw inbound olein cargoes tumbling noticeably by 38.03% to 104,996 tons. Other refined products, RBD palm oil and stearin, also headed lower in February, declining by 23.37% and 20.52%, respectively.
The Indonesian government's assertive policy to ensure sufficient domestic cooking oil supply of 450,000 tons a month under the Domestic Market Obligation (DMO) policy at a targeted price of Rp.14,000/litre or US$0.956/litre under the Domestic Price Obligation policy limited the export potential as exporters pulled back, awaiting further guidance. Implementing the DMO and DPO based on the export-to-domestic supply ratio was expected to be raised in February and possibly in March from the current 1:6 to ensure ample supply available ahead of Ramadan seasonal demand when cooking oil usage typically sees a spike.
The current ratio of 1:6 means exporters supplying a ton of cooking oil in the domestic market will be eligible to receive export permits to ship six times the domestic volume. However, a higher DMO will limit the export flow. Indonesia exports an average of 2.200 million tons of palm products monthly and produces around 4.270 million tons of CPO and CPKO with a buffer stock of 3.50—4.00 million tons a month. The expectation is that the DMO ratio of 1:6 will be relaxed after the Eid festival in April, allowing for higher exports for each unit of domestic supply.
However, also limiting the exports, for now, is the higher biodiesel blend of B35, which requires local producers to supply upstream CPO to local biodiesel producers to meet the consumption target set by the government. The higher biodiesel target will limit the outflow of CPO by a million tons a month.
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