Indonesian palm oil traders curse policy reversal
Indonesian palm oil traders said they have been sideswiped by yet another last-minute policy U-turn from their government.
After announcing on 26 April the latest palm oil export ban will only include refined, bleached or deodorised (RBD) palm olein, the Co-ordinating Ministry of Economic Affairs said on 27 April that crude and refined palm oil, used cooking oil (UCO) and palm oil mill effluent (Pome) will also be banned.
The injunction begins midnight on 28 April until domestic bulk cooking oil costs fall below 14,000 rupiah/litre ($1/l).
The constant switching in policy direction, which started with a domestic market obligation in January, replaced with higher export levies in March and now an outright ban, has left market participants in turmoil and wreaked havoc with supply chain logistics.
"This flip-flop is terrible for the industry," said one supplier.
Even before the latest shock market participants on 27 April were already reporting ships loaded with RBD olein being pulled back to anchorage or stopped from sailing by the navy at Dumai as they will be unable clear Indonesian waters in time.
"This is insane… madness," said one trader. A Iarge-scale Indonesian producer added it was, "a state of chaos and unco-ordinated execution unfortunately even with the extreme policy measures".
Domestic suppliers of all affected products will now have to contend with escalating demurrage payments and brimming storage, with tanks soon to be priced at a premium.
The mills should have some storage that could last a while, a large-scale palm oil producer said, but small holders that do not have much tank capacity could suffer. Refineries may also have to shut with no space to put product.
UCO collectors will also struggle, with one saying that it had maybe one week before tanks will be overflowing.
The only short-term reprieve is an extended Hari Raya holiday next week that will reduce collections and production activity. But if the ban extends much longer than that then things could become dire for suppliers quickly.
Malaysia benefits
"Malaysia is the only winner," said one trader. Many other agreed as sellers from the world's second-largest palm oil producer behind Indonesia look to capitalise.
Pome offers from Malaysia were now up to $1,480/t fob Port Klang from just $1,350-1,400/t the previous day.
But according to a letter from the Ministry of Trade seen by Argus, while harmonised systems (HS) code 23069090 is included in the ban — under which Pome is sometimes exported — it only applies to product with a free fatty acid level below 20pc, whereas Pome is usually 40pc or above. Other HS codes included are 15180014, 15180019, 15180032, 15180038, 15180060 and 15180090 for UCO, according to the letter, although an official regulation from the government is yet to be released. CPO falls under 15111000 and RPO under 15119020.
CPO futures on the Bursa Malaysia exchange have hit 7,132 ringgit/t ($1,635/t) in morning trading, the highest level since the all-time record was broken on 9 March following the escalating Russia-Ukraine conflict and Jakarta's previous failed attempts to control domestic prices sent them soaring to 7,268 ringgit/t.
Disbelief has quickly switched to despair and market participants are focusing their anger squarely on Indonesian policy makers as they deal with the fallout from the stream of seemingly panicked decisions.
"No one has the answer because all these details have not been thought through," said one broker.
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