The decision by Indonesia, the world's largest palm oil exporter, to restrict shipments and increase domestic biodiesel consumption is expected to squeeze global vegetable oil supplies, which are already being squeezed by lower output in Southeast Asia and Latin America.
Buyers of edible oil, including price-sensitive consumers in South Asia and Africa, will bear the brunt of supply-side constraints that come at a time when demand is expected to rise, with China relaxing COVID-19 controls and India increasing purchases.
Indonesia's new restrictions are yet another challenge for food-importing countries still reeling from last year's record-breaking inflation, which drove prices of key staples such as wheat, corn, and soybeans to all-time or multi-year highs.
"The implementation of (the) B35 mandate in Indonesia in 2023 definitely changes (the) global palm oil SND (supply and demand) situation," said Oscar Tjakra, a senior analyst at food and agribusiness research at Rabobank.
"I'm now expecting global palm oil SND will be in a slight deficit."
Indonesia's B35 mandate, the world's strictest, requires diesel sold in the country beginning February 1 to contain 35% palm-based fatty acid methyl ester. In comparison, Malaysia has partially implemented a 20% biodiesel blending mandate, while other countries have policies requiring single and double digit percentages of bio content in diesel or gasoline.
According to the Indonesia Biofuel Producers Association, the B35 mandate will consume 11.44 million tonnes of palm oil this year, up from 9.6 million under the country's B30 measure in 2022.
Indonesia, which produces more than half of the world's palm oil supplies, also tightened trade rules this year, allowing exporters to ship only six times their domestic palm oil sales volume, compared to an eight-to-one ratio in the fourth quarter of 2022.
"Indonesian palm oil export definitely will drop, as output will decline, domestic consumption will increase," Fadhil Hasan, an Indonesian Palm Oil Association (GAPKI) official, told Reuters.
GAPKI estimates that Indonesia will produce 51.3 million tonnes of palm oil in 2022 and export 33.7 million. Palm oil output is expected to be 50.82 million tonnes in 2023, with exports of 26.42 million tonnes, according to the report.
Malaysia said on Thursday that it may stop exporting palm oil to the European Union in response to a new EU law aimed at protecting forests by strictly regulating palm oil sales.
According to Malaysian Palm Oil Board Director General Ahmad Parveez Ghulam Kadir, Malaysian benchmark palm oil futures are expected to trade in the 4,000-4,200 ringgit ($920-$970) per tonne range this year.
This is lower than the record average of 4,910 ringgit in 2022, when prices were skewed higher by Russia's invasion of Ukraine, which disrupted edible oil supplies and distribution.
However, it remains relatively high. Between 2018 and 2022, prices per tonne averaged 3,260 ringgit.
Malaysian palm futures were trading near a three-week low of 3,860 ringgit on Friday.
Argentina's worst drought in 60 years, which is expected to reduce soybean output to 41 million tonnes, down from 48 million previously estimated, is another threat to edible oil supplies.
India's palm oil imports increased 94% year on year in December to a record high, as refiners increased purchases due to the product's higher discount to rival vegetable oils.
"Palm oil's discount to rival oils is around $300 a tonne, we expect this discount to narrow to around $200 by March," said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage.
"But India's strong demand for palm oil will continue as it is still the cheapest edible oil."
China, the world's second-largest importer, is also expected to increase its purchases of palm oil this year, after a sharp drop in 2022 due to Beijing's then-strict COVID controls.
(Source:www.reuters.com)
Buyers of edible oil, including price-sensitive consumers in South Asia and Africa, will bear the brunt of supply-side constraints that come at a time when demand is expected to rise, with China relaxing COVID-19 controls and India increasing purchases.
Indonesia's new restrictions are yet another challenge for food-importing countries still reeling from last year's record-breaking inflation, which drove prices of key staples such as wheat, corn, and soybeans to all-time or multi-year highs.
"The implementation of (the) B35 mandate in Indonesia in 2023 definitely changes (the) global palm oil SND (supply and demand) situation," said Oscar Tjakra, a senior analyst at food and agribusiness research at Rabobank.
"I'm now expecting global palm oil SND will be in a slight deficit."
Indonesia's B35 mandate, the world's strictest, requires diesel sold in the country beginning February 1 to contain 35% palm-based fatty acid methyl ester. In comparison, Malaysia has partially implemented a 20% biodiesel blending mandate, while other countries have policies requiring single and double digit percentages of bio content in diesel or gasoline.
According to the Indonesia Biofuel Producers Association, the B35 mandate will consume 11.44 million tonnes of palm oil this year, up from 9.6 million under the country's B30 measure in 2022.
Indonesia, which produces more than half of the world's palm oil supplies, also tightened trade rules this year, allowing exporters to ship only six times their domestic palm oil sales volume, compared to an eight-to-one ratio in the fourth quarter of 2022.
"Indonesian palm oil export definitely will drop, as output will decline, domestic consumption will increase," Fadhil Hasan, an Indonesian Palm Oil Association (GAPKI) official, told Reuters.
GAPKI estimates that Indonesia will produce 51.3 million tonnes of palm oil in 2022 and export 33.7 million. Palm oil output is expected to be 50.82 million tonnes in 2023, with exports of 26.42 million tonnes, according to the report.
Malaysia said on Thursday that it may stop exporting palm oil to the European Union in response to a new EU law aimed at protecting forests by strictly regulating palm oil sales.
According to Malaysian Palm Oil Board Director General Ahmad Parveez Ghulam Kadir, Malaysian benchmark palm oil futures are expected to trade in the 4,000-4,200 ringgit ($920-$970) per tonne range this year.
This is lower than the record average of 4,910 ringgit in 2022, when prices were skewed higher by Russia's invasion of Ukraine, which disrupted edible oil supplies and distribution.
However, it remains relatively high. Between 2018 and 2022, prices per tonne averaged 3,260 ringgit.
Malaysian palm futures were trading near a three-week low of 3,860 ringgit on Friday.
Argentina's worst drought in 60 years, which is expected to reduce soybean output to 41 million tonnes, down from 48 million previously estimated, is another threat to edible oil supplies.
India's palm oil imports increased 94% year on year in December to a record high, as refiners increased purchases due to the product's higher discount to rival vegetable oils.
"Palm oil's discount to rival oils is around $300 a tonne, we expect this discount to narrow to around $200 by March," said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage.
"But India's strong demand for palm oil will continue as it is still the cheapest edible oil."
China, the world's second-largest importer, is also expected to increase its purchases of palm oil this year, after a sharp drop in 2022 due to Beijing's then-strict COVID controls.
(Source:www.reuters.com)
