Indonesian Palm Oil Policy Causes Bullish Confusion

The MBP for Crude Palm Oil CIF Rotterdam [Mintec Code: CPOR] was assessed at $985.50/mt, up $10.50/mt on the week. The price increase over the last few days has been attributed to a lack of supply some thought the Indonesia palm oil export policy change would bring.

Indonesia has now changed its palm oil export policy by suspending two-thirds of unutilised export permits until April, ‘forcing’ supply to the domestic market. Exporters had built up large stockpiles of export permits which were given when supplying the domestic market with palm oil at the required 1:6 ratio (1 tonne of palm oil supplied to the domestic market for every 6 tonnes exported). Despite causing some confusion, the new policy is thought to have a limited impact on price. Even with export permits being slashed by two-thirds, more than 2.3 million metric tonnes permit allowed palm oil will still be available for export, which combined with newly created palm oil will likely see more than enough palm oil supply for the market.

A palm oil broker commented to Mintec, “the policy has caused all kinds of bullish sentiment to enter the market. However, this bullish sentiment is due to a lack of understanding about how the policy works. The Domestic Market Obligation (DMO) is not changing and will remain at 1:6 – this is the most important part. Export permits are to be limited, but there will still be more than enough supply for the international market. The whole policy change has been a storm in a teacup, very little is going to change.”