Indonesia to ban exports of cooking oil and its raw materials

Indonesia will ban exports of cooking oil and its raw material from April 28, President Joko Widodo said in a statement on April 22.

The decision was announced by Widodo after chairing a limited meeting regarding the fulfillment of the people's basic needs, with a focus on availability of cooking oil.

The world's largest palm oil producer and exporter of palm oil has made significant policy shifts since the start of the year to delink domestic cooking oil prices from soaring international vegetable oil markets -- first fixing a market obligation that palm oil that suppliers need to set aside 20% of their production for domestic use in January, and then increasing it to 30% in March.

Jakarta has since cancelled the market obligation in favor of higher export levies that came into effect in April to finance its domestic subsidized cooking oil program.

With official details on the latest ban yet to be released, trade sources in India and Rotterdam said that sellers have stopped giving quotes after Widodo's announcement aired on local media.

Many traders who spoke to S&P Global Commodity Insights said they were left wondering if the latest decree overrules contracts that have already been signed.

"The uncertainty around the restricted product list as well as the subscription and tendering risk of palm feedstock and refined oils could lead to a rush in purchases prior to the 28th deadline. Moving forward and until cooking oil supply normalizes in Indonesia, the local cash market will be the reference as over the DMO period," Marcello Cultrera, institutional sales manager and derivatives dealer at Kuala Lumpur-based Phillip Futures, told S&P Global.

The president said April 22 that he will continue to monitor the implementation of the policy so that vegetable oil is available in the country abundantly and at affordable prices.

Indonesia's export crackdown roils markets

The ban from April 28 could mean that the already traded palm oil cargoes would start to switch to Malaysia and other origins for loading, Anil Kumar Bagani, head of research at Mumbai-based vegetable oil brokerage Sunvin Group said.

The July soybean oil contract on the CBOT was trading up 3.9% after news of Indonesia's palm oil ban broke, trading at 82.74 cents/lb at 7:44 CT.

CPO FOB Indonesia prices have risen 30% since the start of the year to $1,695/mt on April 21.

On the buyers' side, the CPO CIF Rotterdam price rose 29% to $1,692.5/mt while the CPO CFR West Coast India price rose 24% to $1,685/mt in the same time period.

India, China, the EU, Pakistan and Bangladesh are some of the top buyers of crude palm oil and processed palm oil products like palm olein and palm stearin. Apart from its use as a cooking oil, it is used widely to make confectionary, cosmetics and as a feedstock for making biodiesel.