Indonesia palm oil export ban to include crude palm oil, UCO; markets jump

Indonesia's palm oil export ban will include crude palm oil and used cooking oil, Airlangga Hartarto, the country's coordinating minister for economic affairs, said April 27, dashing hopes that the ban would only stop exports of refined palm-based cooking oils.

The export ban would take effect from April 28, Hartarto said in a video statement.

The halt on palm oil exports was first announced by Indonesian President Joko Widodo on April 22 as protests over high cooking oil prices broke out in the country earlier this year. Widodo had said that Jakarta will stop exports of "cooking oil and its raw materials" from April 28 until there are enough stocks for domestic consumption and the skyrocketing domestic prices of cooking oil subside. The announcement sent global edible oil prices soaring as sunflower oil supplies from Black Sea were already choked due to Russia's invasion of Ukraine and unfavorable weather has lowered Argentina's soybean oil exports.

However on April 25, Jakarta had released a statement saying that the export ban would be limited to refined bleached & deodorized palm olein and crude palm oil exports would not be affected.

Indonesia accounts for 35% of the world's total vegetable oil exports according to the US Foreign Agriculture Service.

Trade reactions

Trade sources told S&P Global Commodity Insights April 27 that a total halt of exports could be hard to sustain as the country runs out of capacity to store palm oil and many expect that the complete ban could be revoked in two-three weeks.

"We expect Indonesia will not be able to hold exports for more than one to two weeks and soon after Ramadan (maybe by mid-May) the ban will be revoked," Aditya Jeripotula, head of research at India-based TransGraph Consulting, told S&P Global.

The ban of exports from Indonesia could amount to about a shortage of 2 million mt-to 2.5 million mt of vegetable oil from the international markets in May, two sources said.

The July futures contract, the most active palm oil futures contract on Malaysia's derivatives index, crossed MR 7,000/mt ($1,605.5) mark on April 27, up almost 10%, to close at MR 7,001/mt.

The blanket ban comes after three months of quick policy changes from Indonesia, the world's largest palm oil producer and exporter, as it tries to curb rampant rises in local cooking oil prices that have risen faster than international soybean, sunflower and rapeseed oil prices.

UCO market hit

The ban will also cover Indonesian used cooking oil, adding to the shortage in the waste feedstock market. Indonesian UCO offers were unquoted in the market as suppliers had focused on fulfilling earlier backlog orders.

On the Chinese market, UCO collections had practically grinded to a halt in the wake of lockdowns and logistics issues, with limited volumes available and sellers unwilling to quote as they are unsure of oil collections while buyers are searching for cargoes. A bid was reported for Chinese UCO at below $1,470/mt FOB.