Palm oil producers to see short-term gain on Indonesia export ban

An analyst foresees Malaysia having the capacity to fulfil demand for 625,000 tonnes of palm oil from Indonesia’s export ban 

by ANIS HAZIM / Pic by BLOOMBERG

INDONESIA’S move to ban exports of its palm oil is expected to benefit Malaysian palm oil producers as consumer demand for the edible oil will significantly shift to local producers in an already tight edible oil market. 

Singapore-based Palm Oil Analytics owner and co-founder Dr Sathia Varqa foresees Malaysia having the capacity to fulfil demand for 625,000 tonnes of palm oil from Indonesia’s export ban. 

According to him, Indonesia exports about 70,000 tonnes of palm oil, 500,000 tonnes of palm olein and 55,000 tonnes of crude palm oil (CPO) per month. 

The benchmark CPO futures contract price jumped on the news in early intraday trade to a high of RM6,799 a tonne yesterday. However, profit-taking in the second half of the trading day saw the contract price hit a low of RM6,097 before closing RM133 lower at RM6,222 yesterday. 

“I believe Indonesia will cancel the ban after the Aidilfitri celebration. So, the volatility in the price that we see today is a short-term effect,” he told The Malaysian Reserve (TMR). 

Indonesia last Friday decided to ban all exports of palm oil beginning April 28, following the price increase in domestic cooking oil. 

However, according to Bloomberg yesterday, Indonesia will only halt exports of bulk and packaged RBD palm olein, a higher value product that has been processed. Exports of CPO and RBD palm oil will still be allowed, according to people familiar with the matter. 

RBD olein accounts for 30% to 40% of Indonesia’s total palm oil exports. 

RHB Investment Bank Bhd analyst Hoe Lee Leng stated the export ban may not necessarily have the effect that Indonesia desires as it will likely worsen the pressure on inflation and further encourage hoarding activities. 

She views the winners of this move to include pure upstream Malaysian plantation companies, as well as those with downstream capacities in Indonesia. 

“CPO exporters in Indonesia would suffer as a result, while downstream players with refining capacity would benefit, as there would be a significant shift in the demand-supply mechanics in the country, causing domestic supply to be abundant,” Hoe wrote in a report yesterday. 

RHB’s top local sector stock picks are Kuala Lumpur Kepong Bhd (KLK), Sarawak Oil Palms Bhd and Ta Ann Holdings Bhd. 

Industry veteran MR Chandran said Malaysian plantation companies are set to gain in the short term until the export ban is lifted. 

He said Malaysia’s palm oil will see an increase in export volume and attract new market share if the ban continues. 

“The short term will sustain high prices for CPO and could reach RM8,000 per tonne mark,” he noted. 

However, he doubted Malaysia would be able to fill the gap from Indonesia’s bans. 

“The labour constraints are continuing to negatively impact harvesting of fresh fruit bunch (FFB), CPO supply as well as palm kernel oil (PKO),” he added. 

Public Investment Bank Bhd stated Malaysian plantation players with strong exposure to the Indonesian market (such as Genting Plantation Bhd, KLK, Sime Darby Plantation Bhd and TSH Resources Bhd would not be able to fully capture the benefits of the current strong CPO price. 

Its analyst Chong Hoe Leong noted this is due to the hefty export duties and zero export policy in place. 

“With the export ban, there is little room for upstream plantation players to bargain for higher prices with the refiners,” he stated in a note yesterday. 

According to him, Indonesia is currently trading at a steeper discounted CPO price of RM4,800 per metric tonne (MT) compared to Malaysia’s RM6,773 per MT, based on the latest combined CPO export tax and CPO excise levy. 

CGS-CIMB Securities Sdn Bhd analyst Ng Lee Fang expects CPO prices to rise significantly and potentially surge to new record highs due to panic buying by consumers — if the temporary ban lasts more than four weeks. 

She views the potential winners from this action to include palm oil producers with estates in Malaysia (KLK, IOI Corp Bhd, Sime Darby Plantation, Genting Plantations Bhd, Hap Seng Plantations Bhd and Ta Ann), as well as producers competing for edible oils including soy oil, sunflower oil and rapeseed oil. 

Despite CPO Futures prices ending in the red yesterday, plantation stock like KLK rose RM1 to RM29, IOI Corp added 30 sen to RM4.73 and Sime Darby Plantation edged up nine sen to RM5.34.