Palm oil markets split as Indonesia export revamp confuses trade

(May 22): Palm oil buyers are picking up spot cargoes at bargain rates even as futures prices climb, as traders attempt to understand the impact of a radical export overhaul announced by top producer Indonesia earlier this week.

President Prabowo Subianto announced the plan on Wednesday, citing palm oil, coal and ferronickel. Coordinating Minister for Economic Affairs Airlangga Hartarto later said that only secondary processed products, including crude palm oil and refined, bleached and deodorised (RBD) olein, would be routed through a new state commodity export body. 

Traders have since been seeking details on the full slate of affected goods, with the trade ministry expected to issue more information later today.

Indonesia — which accounts for more than half the world's palm oil exports — ships the tropical oil in a variety of forms, some of which are used directly by consumers for cooking, with others funnelled into thousands of consumer products. Crude palm oil and RBD olein make up about half of all sales, with the rest from products like palm stearin and fatty acid distillates, according to data from cargo surveyor Intertek Testing Services. 

That makes the full details on the rules vital to determine the extent of the market impact. The crop, known for its extraordinary versatility, is estimated to be in about half of all supermarket items, and any export disruptions will quickly reverberate across global crop markets. 

“Everybody is still having confusion on the government export policy and is having a wait-and-see attitude,†said Budiman Suwardi, head of treasury and markets at Prime EcoHarvest Commodities. “We are all waiting for more clarification on the export rules. Everyone seems to be waiting and not willing to price and get caught by government policy.â€

Prices have been whipsawed as traders wrestle with the details. Benchmark palm oil futures in Malaysia, which initially sank following the announcement, recouped some losses on Friday. Traders involved say activity has picked up as participants hedge against risks stemming from the new Indonesian policy and the potential difficulty in getting hold of cargoes there in the coming weeks.

But in tenders for physical supply — a system that involves state-linked plantation groups submitting offers, which refiners, traders and exporters can bid on — Indonesian crude palm oil prices have dropped sharply. Daily bids in state-linked tenders on Wednesday and Thursday were steeply lower than those on Tuesday, before the announcement. 

Absent clarity on the new rules, buyers have also pulled back, according to traders, who asked not to be identified as they were not authorised to speak to the media. 

Still, private suppliers have continued offering cargoes at steep discounts outside those tenders, amid fears over the looming regulations, they said. Some have been snapped up by buyers in India, the world's biggest edible oil importer, with shipments booked for June delivery.

“Indian buyers have been mopping up cheaply priced Indonesian crude palm oil for delivery in June, with volumes of about 100,000 tons in the past three days,†said Mayur Toshniwal, president and head of trading at Emami Agrotech Ltd, an Indian vegetable oil importer and processor. 

“Indonesian prices are now at a sizeable discount to Malaysia which is creating the opportunity for cross-country arbitrage,†Toshniwal said, prompting market participants to buy Indonesian physical cargoes while hedging with Malaysian futures. Indian traders are also taking advantage of the recent appreciation in the Indian rupee to sell edible oils locally, he said.

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