Regional Plantation - Maybank Research 2022-03-10: Indonesia Imposes Further Export Curbs

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Regional Plantation - Indonesia Imposes Further Export Curbs

Malaysia & Indonesia Crude Palm Oil (CPO) price gap may widen even further

  • 3-month FCPO jumped 10% to MYR7,074/t yesterday following Indonesia government’s decision to raise the domestic market obligation (DMO) to 30% (from 20%). While this is positive for CPO price in the short term due to further export curbs by Indonesia, the high CPO price will hasten demand rationing.
  • Meanwhile, the relatively more Malaysia-centric growers such as IOI Corp, Sarawak Oil Palms, Boustead Plantation, Ta Ann, TH Plantation, HapSeng Plantation, and FGV are again clear winners of this additional export curbs.
  • Preferred BUYs remain with KL Kepong, Ta Ann and Bumitama Agri (SGX:P8Z).

Domestic market obligation (DMO) raised to 30% (from 20%) of export volume

  • Indonesia’s trade minister Muhammad Lutfi surprised the market yesterday by raising the Domestic market obligation (DMO) requirement to 30% (from 20%) with effect from 10 Mar 2022.
  • Recall that on 27 Jan 2022, the minister announced that exporters must set aside 20% of their shipments for the DMO that took immediate effect. The aim was to ensure sufficiency of cooking oil in the domestic market at affordable prices.
  • The Indonesia government has also set the prices of local CPO at IDR9,300/kg and Olein at IDR10,300/kg (ie termed as DPO or Domestic Price Obligation) for the affected DMO volume, way below Indonesia’s domestic CPO price.
  • The government also capped the cooking oil prices from as low as IDR11,500/kg (for bulk oil) to as high as IDR14,000/kg (for premium oil) in the domestic market. The minister expected Indonesia’s cooking oil demand to be ~5.6mt in 2022.

We estimate 3.3mt more PO to be allocated for DMO

  • According to GAPKI, Indonesia’s total exports of CPO and palm derivatives for 2021 were 33.67mt. Using this export figure, the 30% DMO requirement will require exporters to set aside 10.1mt (+3.34mt from earlier 20% DMO of 6.73mt) of palm oil for the domestic market cooking oil in 2022.
  • On a monthly basis, an additional 0.28mt will be required to meet the 30% DMO requirement bringing total requirement to 0.84mt per month.
  • In theory, the additional 3.34mt per annum requirement will mean there will be lesser availability of palm oil to be exported in the market for 2022. However, this will be mitigated by the industry’s expectation of CPO output growing by 1mt-2mt in ID (to ~48mt-49mt) in 2022.

Indonesia-Malaysia CPO price gap already at MYR2,138/t recently

  • This DMO policy has inevitably benefited Malaysia-centric growers more in the short term as Indonesia’s export curbs will further tighten the already tight global 17 oils and fats stockpile. Since the DMO started on 27 Jan, the global CPO price increase has far outweighed the DPO at IDR9,300/kg for CPO and IDR10,300/kg for Olein.
  • Nonetheless, we observe a widening domestic CPO price gap between Malaysia and Indonesia growers. It has widened from MYR1,132/t on 27 Jan to MYR2,138/t on 7 Mar 2022. With the government’s revision in the DMO requirement to 30% (from 20%), we think the gap can only widen further from here.

Ong Chee Ting CA Maybank Research | https://www.maybank-ke.com.sg/ 2022-03-10
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