Indonesian palm oil producers are reducing their large inventory surplus by offering discounts to competitors and aggressive sales to India, where demand is increasing in preparation for the Diwali festival next month.
Producers are coming in to reduce their inventories at alluring prices, supported by Jakarta’s waiver of palm oil export levies, which was recently extended until October 31 and reversed course from an export ban in May that had excluded them from international commerce.
And India, the largest importer of vegetable oils in the world, is purchasing, potentially supporting the prices of benchmark palm oil futures while posing a danger to imports of competing products such as soyoil and sun oil.
According to Sandeep Bajoria, CEO of vegetable oil brokerage and consultancy Sunvin Group, “India has been actively importing palm oil from Indonesia due to favorable prices and impending festival demand.”
“From August through November, 2 million tonnes of imports are anticipated.”
According to figures gathered by trade organisation The Solvent Extractors’ Association of India, that would be triple the amount of palm oil India imported from Indonesia, the largest producer in the world, in the preceding four months, from April to July (SEA).
According to Eddy Martono, Secretary General at the Indonesian Palm Oil Association, the momentum in shipments could help reduce Indonesia’s palm oil stocks, which grew from about 4 million tonnes at the end of 2021 to 6.69 million tonnes by the end of June, and back to 4.5 to 5 million tonnes by the end of September (GAPKI).
He also mentioned that a drop in output following the end of the main harvest season will help the drawdown.
The stockpiles were developed during Jakarta’s early-year gradual tightening of export regulations, which culminated in the abrupt three-week export suspension.
The government wanted to lower the cost of edible oils locally, but in the process, it drove up global prices, which reached a record high of 7,268 Malaysian ringgit ($1,598) per tonne.
The second-largest producer of palm oil, Malaysia, hurried to seize Indonesia’s market share, along with competing oils like soyoil and sunoil.
Sunvin Group’s Bajoria stated that demand from India was reduced as soyoil and sunoil, which are typically much more expensive than palm oil, temporarily fell in price to parity.
In the 2021/22 marketing year to end-October, Malaysia has also supplanted Indonesia as India’s main exporter of palm oil, according to SEA data.
The restriction was eventually lifted, and in mid-July, export taxes that had been used to finance biodiesel and replanting programs started to be waived as the Indonesian government grew more concerned about swollen palm oil reserves and struggling palm growers.
According to a palm oil trader in New Delhi, “Indonesian vendors are now striving hard to recoup the lost market share by offering discounts.”
Palm oil is once again being sold at a significant discount to rival oils, being offered at $940 per tonne including cost, insurance, and freight (CIF) to India for shipment in September as opposed to $1,288 for crude soyoil, according to dealers. Palm oil futures prices have now fallen by almost half from their record high.
Additionally, Indonesian producers are aggressively undercutting to reclaim market share from their Malaysian neighbours.
“When compared to Malaysia, sellers in Indonesia are currently quite competitive. Under Malaysia, they are providing a discount of up to $5 a tonne, “said a dealer with a multinational trading company based in Mumbai.
He claimed that when the export levy was initially eliminated in July-August, they had been providing discounts of up to $15.
When Indonesian Trade Minister Zuklifli Hasan visited India last month, he also urged Indian buyers to purchase more palm oil from Indonesia, according to a senior industry official who was present. The meeting was private, so the official asked to remain anonymous.
However, market participants said it would only be a matter of time until Jakarta resumes its customary export duties because Indonesia’s stockpiles had returned to normal during this window of waived export levies and strong Indian demand.
Source: Reuters
