India Ratings and Research (Ind-Ra) on Friday said Indonesia’s recent decision to include crude palm oil (CPO) in the scope of its export ban starting 28 April is likely to affect both supply and prices of edible oils globally.
The move could remove about 2 million tonnes (mnt) of palm oil supply from the global market every month, which is nearly 50% of the global monthly trade volumes, leading to a rise in substitution demand for other oils and thus a widespread rise in edible oil prices.
The ban puts half of India’s palm oil supply under a cloud, while also increasing consumer inflation. High imports at a continued depreciating rupee will affect the landed prices of other edible oils.
However, Ind-Ra believes that the ban is unlikely to sustain for a long duration, given that Indonesia consumes less than 40% of its total palm oil production, resulting in the impact being transitory.
Indonesia on 22 April announced a ban on palm oil exports to increase domestic availability and to control the rising domestic prices.
Clarificatory reports on 25 April 2022 indicated that the ban did not apply to CPO but to refined bleached deodorised palmolein, but the government widened the scope a couple of days later to also include CPO.
Further, it noted that prices of all edible oils have witnessed a significant surge since the COVID outbreak that triggered supply chain disruptions globally.
CPO prices hit a decadal high of over $1,200 in 2021 as production continued to lag consumption growth for three consecutive years (2018-19 to 2020-21), leading to a reduction in inventories.
Price rose to an all-time high of $1,900 per tonne in March 2022 as the Russia-Ukraine conflict severely impacted the availability of crude sunflower oil, since Ukraine and Russia account for over two-thirds of the global sunflower oil. Besides, there is the impact of a drought in South America on soybean production, leading to a potential of a large substitution demand, the report said.
Prices of soybean oil and sunflower oil jumped 30-50 per cent over January 2022 to April 2022.
CPO prices have witnessed significant volatility in the past week, owing to the confusion over the products covered under the ban, according to the report.
The export ban is the latest in the series of measures taken by the Indonesian government to control the rising palm oil prices in the country that have jumped significantly in the past one year due to the supply shortages caused by adverse weather conditions and labour availability issues, the report added.
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