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Palm Oil Prices to Soar as Indonesia Bans Edible Oil Exports

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The world’s biggest palm oil producer, Indonesia, is the latest country to embrace protectionist measures to mitigate domestic food shortages, as President Joko Widodo on Friday announced the export ban of all cooking oil and palm oil products would begin on April 28.

Widodo said during a television broadcast that the measures aimed to ensure domestic markets had ample cooking oil supplies following a dramatic increase in prices.

“I will monitor and evaluate the implementation of this policy so availability of cooking oil in the domestic market becomes abundant and affordable,” he said.

The spot palm oil contract on the Bursa Malaysia Derivatives Exchange was trading around 6,800 ringgit ($1,570) a tonne on Friday, up 5.1 percent from an all-time high of 6,466 ringgit some two months ago on February 23.

Palm oil is of strategic importance as it is used in the production of more than half of the products sold in supermarkets globally.

Nigeria remains the top palm oil producer in Africa based on the data by USDA. However, despite Nigeria being the largest producer of palm oil in Africa, Cote’Divoire remains the largest exporter of the commodity, with Nigeria settled at the sixth position on the list of palm oil exporting countries in Africa.

The Federal Government’s policies such as; 35 percent levy on imported palm oil, import ban on refined oil, the exclusion of palm oil and related products from sourcing dollars from the official FX market and the border closure since August 2019, have been supportive for the oil palm sector.

The continuous importance of Crude Palm Oil (CPO) for food, biofuel and cosmetics purposes has led to uptick in its demand universally.

Palm oil remains the cheapest and most edible vegetable oil globally. The oil palm tree produces 4.95 ton of edible oil per hectare (ha), six times more than the rapeseed tree, the next highest.

In addition to its use as cooking oil, it is also used in the manufacture of soaps and detergents, cosmetics, pharmaceuticals, biscuits, biodiesel among others.

Nigeria oil palm producers Okomu Oil and Presco have undertaken capital investments which is set to underpin the growth of both firms into the next few years, and may benefit from the rise in Palm oil prices assuming they can execute on their growth plans.

“We remain optimistic about the future of the Palm oil industry in Nigeria as the key players continue to invest aggressively in capacity expansion,” said Oluwashina Akinremi, a United Capital Research Analyst.

Okomu Oil’s 9,000 hectares of mature plantation from its extension II is expected to to support growth. Also, Presco expansion of its existing Palm Oil mill from 60 tons/hour to a 90 tons/hour milling plant, and construction of a new 60 ton/hour Palm Oil mill in Sokoban estate which is to be completed in 2023 will boost output.

Following news of the Indonesia ban on palm oil export’s, traders are placing bullish bets that world supplies of cooking oil and palm oil products will tighten even more. U.S. soyoil futures jumped more than 3% to a record high of 84 cents per pound.

“The news will certainly create a mayhem,” said Paramalingam Supramaniam, director at Selangor-based broker Pelindung Bestari.

“We have the largest producer banning the exports of palm products which will add more uncertainty to the already tight availability of vegetable oil worldwide,” Supramaniam said. 

The Ukraine conflict has roiled the global edible oil market. The Black Sea region accounts for 76% of world sunoil exports.

Commercial shipments in the region have been disrupted due mainly by insurers for vessels charging very high war premiums that make cargo nearly impossible in insure.

Indonesia’s move to ban palm oil adds to the growing food protectionism as several other countries, including Argentina, have raised export taxes on edible oils. Meanwhile, Moldova, Hungary, and Serbia have banned some grain exports.

Increasing food protectionism is another worry for importers dependent on other countries (such as ones in the Middle East and Africa) that may lead to shortages and trigger unrest.

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