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Indonesian ban of palm oil disrupts vegoil trade

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Indonesia banned its palm oil exports since 28 April to ensure the availability of food products in the domestic market after global food inflation soared to record highs. This is likely to shift vegoil demand towards soybean oil, rapeseed oil and groundnut oil, increasing long-haul vegoil exports from South America to India, China and Europe.

The products banned include crude palm oil (CPO), RBD palm oil, RBD palm olein, and used cooking oil (UCO). The sanctions on palm oil exports are likely to reduce exports, which could impact the overall vegoil trade as soybean oil is unlikely to fully replace the lower volumes of palm oil and sunflower oil.

Indonesia, the world’s largest producer and exporter of palm oil, exported 2.5 million tonnes of crude palm oil and 22.6 million tonnes of refined palm oil and 341, thousand tonnes of UCO in 2021. Monthly average exports were about 2.1 million tonnes in 2021.

Figure 1: Indonesia palm oil exports

Figure 1: Indonesia palm oil exports

Major ports loading palm oil products (including CPO, refined palm oil and UCO) in Indonesia are Dumai, Belawan and Balikpapan which accounted for 39%, 11% and 10% of the country’s palm oil exports volume in 2021. 

Figure 2: Indonesia palm oil exports by loading ports, 2021

Figure 2: Indonesia palm oil exports by loading ports, 2021

Figure 3: Indonesia palm oil exports by destinations, 2021

Figure 3: Indonesia palm oil exports by destinations, 2021

China and India are the top two importers of Indonesian palm oil products, accounting for 17% and 12% respectively in 2021.

Most buyers will switch to Malaysian crude palm oil, refined palm oil and UCO supply, thus benefitting Malaysian planters. While palm oil production in Malaysia started to increase in March, Indonesia’s palm production typically increases rapidly from May, peaking in the third quarter. This may further aggravate the tightness across the vegoil market that is also suffering from the disruptions in the sunflower oil supply chain since the outbreak of the Russia-Ukraine conflicts. Furthermore, palm oil prices surged by 64% in March YoY.

Figure 4: Malaysia palm oil exports

Figure 4: Malaysia palm oil exports

Drewry forecasts the vegoils trade to drop by 2.9% to 85 million tonnes in 2022 due to extremely high prices and tight supply, but tonne-mile demand is estimated to increase by 1% in 2022, amid robust demand on long-haul routes. 

We expect vegoil freight rates on Straits-India to weaken in 2Q22 amid Indonesia’s ban. If the sanctions for palm oil last for three months, exports from the Straits will decline by 4-5 million tonnes as Malaysia’s palm oil is insufficient to counterbalance Indonesia’s share. On the other side, surging vegoil prices will also dent demand.

Figure 5: Palm oil freight rates from Straits to India

Figure 5: Palm oil freight rates from Straits to India

Industry at a glance

World Container Index

East-West composite ($/40ft)

Bunker Prices

Rotterdam ($/tonne)

Global Port Throughput

Jan 2012 = 100

Idle Capacity

(‘000 teu)

Source : Drewry Maritime Research

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