Agri Business

Indonesia’s move to cut taxes on palm oil may benefit consumers

Subramani Ra Mancombu | | Updated on: Jun 08, 2022

Jakarta will likely ship over 2 million tonnes; prices seen heading lower  

Edible oil consumers can heave a sigh of relief as there are visible signs of palm oil prices easing. This, in turn, could drag prices of other oils such as soyabean, rapeseed and sunflower, according to industry experts.

In a first sign, Indonesia had brought down the combined taxes on palm oil export to $488 a tonne from $575. 

On Tuesday,  Indonesia Trade Minister Muhammad Lutfi said, while the maximum tax on crude palm oil export would be raised to $288 a tonne, the maximum levy would be lowered to $200 a tonne, thus totalling $488 a tonne. He, however, did not say when the cut will come into force. 

Fillip to shipments

“Indonesia’s move to cut the levy means it will provide a fillip to exports. If supply stabilises in a month, the market will drop sharply,” said Abdul Hameed, Director-Sales, Manzoor Trading in Lahore, Pakistan. 

Jakarta uses the levy, based on how the market behaves for subsidising biodiesel and replantation of small farms. The levy gains with the rise in the market price. 

“A big drop is likely over the next few weeks in palm oil prices. Indonesia is likely to release 2.5 million tonnes of palm oil,” Hameed said. 

Market reaction

On Wednesday, crude palm oil prices on Bursa Malaysia Derivatives (BMD) market dropped by over 1 per cent to 6,428 Malaysian ringgits (MYR) ($1,463.57) a tonne for the August contract, while the September contract slipped by nearly 1 per cent to 6,269 MYR ($1,427.37).   

“Though Indonesia has cut the prices by $88 a tonne, it would result in a gain of $40 only,” said edible oil expert and GGN research founder Govindbhai G Patel. 

Hameed said there are other reasons why the palm oil complex will be under pressure. “The market will head lower in the coming days as supply is set to ease and demand will drop. Production is expected to rise as the peak production season is set to start,” Hameed said. 

“Edible oil prices are set to ease from now,” Patel said. 

A new threat

However, Sudhakar Desai, Indian Vegetable Oil Producers Association (IVPA), said Indonesia’s proposal to tax exporters an additional $200 a tonne if they don’t meet the domestic market obligations could be a dampener. “If that happens, the prices in Indonesia will remain almost static,” he said. 

“Pakistan’s edible oil pipeline is almost dry, but India has good stocks in hand. Indian domestic demand is slack, so we don’t see a big impact in the coming days,” the Manzoor Trading official said. 

In addition, Malaysia’s palm oil exports are expected to drop this month after a strong show last month due to competition from Indonesia and India shifting its focus to soft oils such as soyabean. 

Correction likely

Hameed said the upside for palm oil looks limited in the coming days. “A healthy correction is expected if palm oil prices decline below 5,700 MYR ($1,298.11). It will be a good buying opportunity for the short-term,” he said.   

But Desai said, Indonesia’s licensing of palm oil exports is an area of concern and hence the flow of oil from Jakarta will be restricted. “Indonesia has stock of 3 million tonnes, though,” he said. 

Hameed, on the other hand, said with Russia allowing grain exports from Mariupol and Berdyansk, the market sentiment could turn negative. 

Factors behind surge

Edible oil prices have soared over the last two years as the production in oil palm plantations was affected by the Covid pandemic, while dry weather in South America resulted in lower soyabean output. The outbreak of Russia-Ukraine war from February 24 has further complicated the situation, with prices rising due to disruptions in sunflower oil supplies. 

Currently, the landed price of RBD palmolein at Mumbai is $1,735 a tonne, while that of crude palm oil is $1,745. Crude de-gummed soyabean oil price is $1,835 and crude sunflower oil is $2,015. 

According to the Ministry of Consumer Affairs, the weighted average per kg retail price of palm oil ₹156.08 (₹158,.94 a month ago), while that of soyabean oil is ₹168.73 (₹169.98). Sunflower oil is ruling at ₹192.26 (₹191.69). 

Published on June 08, 2022
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