SINGAPORE/JAKARTA, Jan 13 (Reuters) – Top palm oil exporter Indonesia’s move to curb shipments and boost domestic biodiesel consumption comes amid lower production of the vegetable oil in Southeast Asia and Latin America. Global supply is already set to shrink.
Edible oil buyers, including price-sensitive consumers in South Asia and Africa, will bear the brunt of supply-side disruptions that will come as demand is forecast to pick up, with China easing COVID-19 controls and India Increased purchasing.
Indonesia’s export restrictions and high use of the crop to make biofuels are another challenge for food-importing countries hit by last year’s inflation, which pushed prices of staples such as wheat, corn and soybeans to all-time highs. or brought to the heights of several years. .
“The implementation of the (B35) mandate in Indonesia in 2023 will definitely change the global palm oil SND (supply and demand) situation in 2023,” said Oscar Tjakara, a senior analyst for food and agribusiness research at Rabobank. said
“I now expect global palm oil SND to be slightly in the red.”
Indonesia’s B35 mandate, one of the highest in the world, requires diesel sold in the country to contain 35% palm-based fatty acid methyl esters starting February 1. In comparison, Malaysia has partially implemented a 20% biodiesel blending mandate and other countries have measures for single- and double-digit percentages of biomaterials for diesel or gasoline.
The Indonesia Biofuel Producers Association says the B35 mandate will lead to 11.44 million tonnes of palm oil this year, up from 9.6 million in 2022 under the country’s B30 initiative.
Indonesia, the producer of more than half of the world’s palm oil supply, also tightened trade rules this year, allowing exporters to ship only six times the volume of palm oil they sell domestically. Which is less than the eight times ratio of the fourth quarter of 2022.
“Indonesian palm oil exports will definitely decrease, as production will decrease, domestic consumption will increase,” Fazil Hasan, an official at the Indonesian Palm Oil Association (GAPKI), told Reuters.
According to GAPKI estimates, Indonesia will produce 51.3 million tons of palm oil in 2022 and export 33.7 million tons. In 2023, palm oil production is expected to reach 50.82 million tons and exports to 26.42 million tons.
Benchmark palm oil futures this year are expected to be in the range of 4,000-4,200 ringgit ($920-$970) per tonne, according to Malaysian Palm Oil Board director-general Ahmad Pervez Ghulam Kadir.
That’s below a record average of 4,910 ringgit a tonne for Malaysian palm futures in 2022, with prices higher due to disruptions in the supply and distribution of edible oil from Russia’s invasion of Ukraine. But it is still higher than previous years. Malaysian crude palm oil prices averaged 3,260 ringgit per tonne between 2018 and 2022.
Malaysian palm futures were trading around 3,860 ringgit on Friday, hovering near a three-week low.
Other risks to edible oil supplies include Argentina’s worst drought in 60 years, which is forecast to reduce its soybean production to 41 million tonnes, down from an earlier estimate of 48 million tonnes.
Strong demand
India’s palm oil imports in December surged 94 percent from a year earlier to a record high as higher discounts on palm oil to rival vegetable oils prompted refiners to increase purchases.
“Palm oil’s discount to rival oils is around $300 a tonne, we expect the discount to narrow to around $200 by March,” said Sandeep Bajoria, chief executive of vegetable oil brokerage Sanveen Group.
“But India’s strong demand for palm oil will continue as it is still the cheapest edible oil.”
Palm oil purchases by China, the world’s second-largest importer, are also expected to increase this year, after falling sharply in 2022 due to Beijing’s then-tightened COVID controls.
($1 = 4.3350 ringgit)
Reporting by Naveen Thakral and Bernadette Christina; Additional reporting by Francesca Nangoy in Jakarta and Mi Mi Chu in Kuala Lumpur; Edited by Tom Hogg
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