More policy action on CPO exports by Indonesia likely, says RHB Investment


CRUDE palm oil (CPO) and stock prices may move in different directions following Indonesia’s move to lift its palm oil export ban, said RHB Investment Bank Bhd.

Its analyst Hoe Lee Leng believes there may be further announcements from Jakarta as prices have yet to come down to the desired levels and because the lifting of the ban could lead to recurring domestic shortages.

“We understand some of the policy changes that have been considered including raising the ceiling price of bulk cooking oil to 17,000 rupiah (RM5.10) per litre; the appointment of government entities to purchase price-controlled olein from producers to ensure supply to the domestic market.

“It raises the export levy to set aside money specifically for cooking oil subsidies; it is even possible to restart the domestic market bond scheme with different parameters,” the analyst wrote in a report today.

Hoe added planters have reduced third-party fresh fruit bunch purchases to reduce previous bans as exports can be resumed and some have also postponed their CPO sales given their ability to keep one to three months of inventory.

About a month of exports should return to the market with this move or almost 2.4 million tonnes of supply, he added.

Yesterday, Indonesian President Joko Widodo (picture) lifted the palm oil export ban effective May 23, following an increase in domestic cooking oil supply

Although the price of bulk cooking oil has not yet reached the target of 14,000 rupiah per litre, the ban was decided to take into account the welfare of 17 million workers in the industry.

Hoe noted the Indonesian president also stressed the government will continue to monitor supply closely to ensure needs are met at an affordable price.

He believes the ban on palm oil announced by Jokowi had caused more bulk cooking oil to flood the domestic market to 211,000 tonnes per month at present compared to March’s 64,500 tonnes per month.

This has resulted in the price of bulk cooking oil being reduced by up to 13% to 17,200 rupiah-17,600 rupiah per litre compared to the previous ban of 19,800 rupiah per litre.

RHB Investment retained its ‘Neutral’ call on the plantation sector as it believes there may be more policy changes to come, as the price of bulk cooking oil has yet to come down to the desired level.

Hoe wrote the share price of growers with Indonesian operations may increase, although the price of CPO could go down as a result of the news.

“We use this opportunity to take some profit given the ongoing uncertainty in Indonesia and the potential for an increase in the export levy, which could affect profits,” Hoe added.

Price of the benchmark futures contract rose RM223 to RM6,295 a tone in midday trade on Bursa Derivative Malaysia despite analysts’ expectation that price may fall on the Indonesian government’s move.