Indonesia Tightens Palm Oil Exports

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—The Indonesian government will tighten its palm oil export policy, effective January 1, 2023. The export quota for crude palm oil (CPO) and its derivatives will be reduced to six times the domestic market obligation (DMO), down from the current ratio of eight times the DMO for CPO and/or cooking oil.

According to Budi Santoso, the Director General of Foreign Trade at the Ministry of Trade, the change will ensure sufficient domestic supply during the Ramadan and Eid al-Fitr holidays in April 2023, as production is expected to seasonally decline in the first quarter.

In addition, Indonesia will also implement higher biodiesel blending mandates in 2023, which will increase domestic consumption of palm oil. "We do not want domestic supply to decrease and risk raising local prices," said Firman Hidayat, an official at the Coordinating Ministry for Maritime Affairs and Investment.

The tighter export policy has boosted palm oil futures prices in the Kuala Lumpur market, as the policy is expected to encourage Malaysia, the second largest palm oil exporter, to increase shipments. Futures contracts rose 2.2% to close at 4,178 ringgit ($949) per ton on Friday, the highest level in a month.

Gnanasekar Thiagarajan, Head of Trading and Hedging Strategies at Kaleesuwari Intercontinental, views the new policy as further restricting palm oil supply as Indonesia plans to increase its use of palm oil for biofuels. He also sees higher prospects for prices in the first quarter of 2023.

Despite a roughly 9% increase this week, palm oil futures recorded their first annual drop in four years, down 11% in 2022 after more than doubling in the three years prior, including a 30% surge in 2021 alone. The average price of Malaysian crude palm oil is expected to fall another 25% next year due to higher local production and increased availability of other major vegetable oils, according to the Malaysian Palm Oil Council.

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