Indonesia is resuming palm oil exports, but policy uncertainty remains

After a three-week prohibition, Indonesia is set to begin palm oil exports on Monday, but industry traders and corporations are waiting for specifics on accompanying restrictions to safeguard domestic supply of the edible oil and manage cooking oil prices.

The world's largest palm oil producer banned exports of palm oil on April 28 in an attempt to lower skyrocketing local cooking oil costs, causing global edible oil markets to tremble.

Last week, President Joko Widodo announced the lifting of the export ban on crude palm oil and some derivative products, expressing confidence that bulk cooking oil prices would eventually reach a target of 14,000 rupiah ($0.9546) per litre, despite the fact that prices were currently higher in some areas.

Palm oil, which is used in everything from margarine to shampoo, accounts for a third of the global vegetable oil market, with Indonesia supplying over 60% of it.

To ensure supply security, Indonesia announced that it will implement a policy known as the Domestic Market Obligation (DMO), which requires producers to sell a percentage of their products locally at a set price.

Under the DMO standards, Indonesia wants to keep 10 million tonnes of cooking oil supplies at home, according to Chief Economics Minister Airlangga Hartarto, who added that the Trade Ministry will oversee their implementation.

On Monday, traders were waiting for specifics on the DMO and other restrictions to be released.

"Sellers are attempting to clear pending orders that have been stalled due to the ban.
They are also taking fresh orders, but demand is not high "said a Mumbai-based global trading house dealer.

"They also don't want to sell a lot till they grasp DMO laws," the trader continued.

Palm oil prices from competitor supplier Malaysia rose 1.67 percent on Monday, partly reflecting the policy uncertainty in Indonesia.

When asked if Musim Mas had begun exports, spokeswoman Carolyn Lim said the company was still focused on "flooding the domestic markets with cooking oil in the hopes of reaching the target retail price," stressing that the Indonesian government was still concerned about high retail pricing.

According to Trade Ministry data, the average price of bulk cooking oil was 17,000 rupiah per litre as of Friday.