International News

Indonesian Edible Oil Export Ban

Author : Bozhou Marine

Update time : 2022-04-29 16:31:29

The Russian-Ukrainian conflict has entered its second month, and the Indonesian government has decided to ban the export of palm oil due to a shortage of local edible oil and soaring prices.

Palm oil is the world's most consumed edible oil, and Indonesia is the largest producer of palm oil, accounting for more than a third of global vegetable oil exports. The ban directly sent the futures price of soybean oil as an alternative soaring to an all-time high.

Previously, Indonesia also introduced the same policy in January, but it was cancelled in March after strong opposition from international traders, and an 80% export tax was imposed on exported oil instead.

As far as palm oil is concerned, there is no real shortage in the global market. Indonesia exported 26.87 million tonnes last year, but in fact its domestic consumption was only 15.28 million tonnes. What's at stake is the supply chain that continues to bottleneck and the supply of other edible oils.

Since the beginning of this year, affected by the epidemic, extreme weather and geopolitical factors, global edible oil prices have continued to rise, and some varieties of edible oils such as palm oil, soybean oil and sunflower oil have risen to record highs.

  Reduced vegetable oil production

Palm oil is one of the most widely used vegetable oils in the world and is used to make a variety of commodities including biscuits, margarine, chocolate and more.

In addition to palm oil, soybean oil, rapeseed oil and sunflower oil are the main edible oil varieties, and these four oils account for 40% of the global edible oil supply.

Soybean oil is the second most produced edible oil, with China the largest producer and Argentina the largest exporter.

But Argentine soybeans did not grow well this season, resulting in lower soybean oil exports this year. In addition, Argentina suspended overseas sales of soybean oil and soybean meal in mid-March and raised export taxes to protect the domestic food industry.

The U.S. and Brazil are the second-largest soybean oil exporters, but there is limited room to improve supply capacity in the short term.

Ukraine and Russia supply 80% of the world's sunflower oil exports, while Ukraine has reduced its sunflower oil exports by 95% due to the Russian-Ukrainian conflict, and Russia has been exporting quotas since April 15.

Canola oil production has been reduced this year due to climate factors, and a devastating drought in the North American prairies has pushed Canadian canola prices to record highs. India has harvested a record crop of rapeseed, but local farmers are still waiting for the rare goods to live and keep the rapeseed in their hands, hoping to squeeze them after the price rises further.

Combining various factors, the supply and demand of the global edible oil market has become increasingly tight. In the past 12 months, palm oil in Asia is up about 50% and canola in Europe is up 55%. Despite this, the global supply of vegetable oils is still in short supply.

  Competition between edible oil and fuel

In addition to production cuts and supply chain obstructions, another major killer threatening edible oil supplies is renewable fuels.

Most of the renewable fuels depend on the supply of vegetable oils and animal fats, and the global enthusiasm for renewable fuels has spread rapidly recently and is still growing due to oil shortages. This also means accelerated consumption of vegetable oils and animal fats.

"The fact is, in our view, we (the U.S.) will need 40 billion pounds of feedstock to keep renewable energy refineries running by 2025," said Peter Meyer, head of grain analysis at Platts.

But the reality is that, taking the United States as an example, only 12-14 billion pounds of fat can be produced every year, and the remaining 40 billion needs to be filled with soybean oil. The annual U.S. soybean oil production capacity is only 25 billion pounds.

The question before the U.S. government is, should soybean oil be eaten or burned?

Mic Kie, president of the American Bakers Association, said: "We urgently need the U.S. Environmental Protection Agency to take the right action to get soybean oil stocks back into food instead of biodiesel production."

Compared with choosing one of the two, the United States, which is also a major exporter of soybean oil, may be more willing to follow Indonesia's example and ensure the domestic supply first, and then talk about how to use it. As the Russian-Ukrainian conflict drags on, this is becoming more and more likely.

"We're likely to see more (actions like this) and that's fueling concerns," Rabobank's Mera warned.

  Indonesia ban won't last long

Although the Indonesian ban caught the market by surprise and sparked panic, analysts said the effect of the Indonesian ban may be limited.

Platts’ Meyer said: “Given Indonesia’s reliance on palm oil exports, a prolonged ban could seriously hurt Indonesia’s economy. Furthermore, this is not the first time Indonesia has announced similar actions since the Russian-Ukrainian conflict. Turn things around quickly."

Meyer added that the ban, scheduled to begin on April 28, could eventually lead to an increase in export tariffs, but not a complete shutdown of exports.

In addition, Meyer pointed out that there is no shortage of palm oil in Indonesia right now, and the 2021/2022 palm oil supply is actually higher than last year and much higher than historical levels.

Blue represents Indonesia's annual palm oil stocks, and orange represents global stocks;

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