Indonesia to suspend some palm oil export permits

JAKARTA - Indonesia will suspend some palm oil export permits to secure domestic supply amid rising cooking oil prices ahead of upcoming Islamic festivals, senior cabinet minister Luhut Pandjaitan said on his official Instagram account on Monday (Feb 7).

Palm oil exporters had accumulated large shipment quotas last year and they now had little incentive to supply the domestic market, he said.

Indonesia issues export permits for palm oil companies that have already sold a proportion of their products to the domestic market, under a policy known as "Domestic Market Obligation" (DMO).

The DMO currently allows export volumes that are six times what companies have sold at home.

"Exporters can use those export rights after the situation has calmed," said Luhut, Coordinating Minister for Maritime Affairs and Investment.

Firman Hidayat, an official at the same ministry, said about a third of existing export quotas could be used now, while the rest could be used after May 1.

He added exporters were holding around 5.9 million tonnes' worth of export permits at end of January.

Exporters could increase their quota when they raised supplies to the domestic market, he said.

Retailers have complained that cooking oil packages at lower prices have been hard to procure and they have been forced to sell them above the regulated price of 14,000 rupiah (S$1.23) per litre.

The Trade Ministry last month said palm oil companies had been ordered to increase domestic supply to 450,000 tonnes per month until April, up from roughly 300,000 tonnes per month previously.

Food prices typically rise ahead of the Islamic month of Ramadan and the Eid al-Fitr celebration which falls in April this year.

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Sahat Sinaga, chair of the Indonesia Palm Oil Board, said companies have been holding back exports, due to lower global market prices and high export levies. With little urgency for exports, companies were also not encouraged to meet their DMO.

Malaysian benchmark palm oil prices have fallen more than 40per cent since reaching a peak last year. Meanwhile, Indonesia resumed imposing export levies in November.

Sahat blamed distributors for the tight supply in the domestic market.

"This is a difficult situation, but everybody must work together. Distributors should not take advantage of the situation," he said.

Rattling global edible oil markets, Indonesia last year banned exports of palm oil used in everything from margarine to cosmetics and fuel for three weeks due to soaring cooking oil prices.

But palm oil prices have since fallen back sharply to stabilise at lower levels as the outlook is now less certain with energy prices off their highs and fears over a global recession.

Malaysia's palm oil futures market was closed on Monday for a public holiday.