Indonesia industry body confident palm oil export ban could end in May

© Reuters. FILE PHOTO: People shop for cooking oil made from oil palms at a supermarket in Jakarta, Indonesia, March 27, 2022. REUTERS/Willy Kurniawan

By Fransiska Nangoy and Bernadette Christina

JAKARTA (Reuters) -Indonesia should be able to tackle its cooking oil shortage in the next few weeks and lift an export ban on palm oil and its refined products in May, an industry body said on Thursday, a day after a last-minute policy U-turn sparked more alarm for markets.

The world's top palm oil producer expanded an export ban on raw materials for cooking oil to include shipments of crude palm oil and most of its refined products just hours before it took effect at midnight Wednesday, in an attempt to secure domestic supply and bring down soaring prices.

Sahat Sinaga, senior official at the Indonesian Palm Oil Board, said that decision had shocked the industry, but was confident the supply issue could be resolved not long after the Muslim festival of Eid al-Fitr in early May.

He added that a palm oil export target of 34 million tonnes in 2022 would be met.

Government officials did not immediately respond to a request for comment on the suggested timeline.

A trade ministry regulation on Wednesday said the export policy would be reviewed monthly, or as often as needed, while Chief Economics Minister Airlangga Hartarto said it could be lifted when bulk cooking oil recedes to 14,000 rupiah ($0.97) a litre nationwide.

It sold for 19,000 to 20,000 rupiah a litre in Jakarta's markets on Thursday.

Previous measures to tame prices had failed due to distribution problems, not supply shortages at factories, Sinaga said, but he expressed confidence in the government's assigning of food procurement agency Bulog and other state firms to handle distribution.

"It will be a great success. It won't take long. After Eid, the market will be flooded," he said.

Markets had shown relief when Indonesia's chief economic minister said on Tuesday the ban would only cover refined, bleached and deodorized (RBD) palm olein, but a day later authorities announced other products would be included.

That had an immediate impact on global vegetable oil prices, sending palm oil futures in Malaysia up by 9.8%. The jitters spilled over into markets on Thursday as the ban took effect.

Trade Minister Muhammad Lutfi said the decision was taken after careful consideration and monitoring cooking oil supply daily.

"I hope we all understand the urgency of this policy," Lutfi said.

Palm oil association GAPKI said the industry was working with the government to ensure affordable cooking oil supplies, but urged authorities to avoid a lengthy and devastating ban on palm oil exports.

'VERY NEGATIVE IMPACT'

"A total ban on the export of CPO and all its derivatives, if prolonged, will have a very negative impact on not only plantation, refinery and packaging companies, but also millions of smallholders," GAPKI said in a statement.

Demonstrating Indonesia's determination to enforce the ban, its navy on Thursday said it had seized two tankers carrying crude palm oil, palm olein and methanol for paperwork discrepancies the day before the measure took effect.

MT World Progress was travelling towards India with 34,854.3 tonnes of palm olein, while MT Annabelle was bound for the United Arab Emirates with 13,357.4 tonnes of crude palm oil and 98 barrels of methanol on board.

The ban has trapped at least 290,000 tonnes of the edible oil meant to be headed to India at Indonesian ports and oil mills, four industry officials told Reuters on Thursday.

Shares in Indonesia palm oil companies fell on Thursday, while concern over the ban pushed the rupiah currency to its lowest since July 2021. In Riau province, small farmers said prices of palm fruits were already dropping.

Radhika Rao, senior DBS Bank economist, said the prospect of exports being impacted was negative for Indonesian earnings and the current account and would "dampen sentiment on the rupiah".

Indonesian President Joko Widodo on Wednesday said people's need for affordable food trumped revenue concerns for now.

The ban gave a lift to his approval rating in an independent survey conducted from April 20-25 - recovering slightly from a 15-percentage-point slump from January.

Food seller Sandri, 42, said he was struggling, but supported the president's move to bring cooking oil prices down.

"It's been heavy on me, because the government said oil prices in markets have gone down. But in reality, it's still the same, there's no drop yet," Sandri said.

($1 = 14,460.0000 rupiah)