For the second time this year, Indonesia has banned the export of a key commodity, sending global markets into chaos and triggering a price surge that will add to already super high levels of inflation.
In January it was a ban on exports of thermal coal which saw world prices surge to all-time highs at the time. Last Friday it was a ban on exports of some types of palm oil which in turn saw world prices hit record highs.
On Wednesday Indonesia widened that ban to include crude and refined palm oil, among other products. Previously, the ban was only set to include refined, bleached, and deodorized palm olein. The ban came into force on Thursday and the latest move saw world soy oil prices hit a series of new highs after those touched a week ago.
“The move dramatically tightens an already tight global supply of edible oils that saw global prices surge when the Russian invasion of Ukraine took Ukrainian sunflower oil supplies off the market,” StoneX chief commodities economist Arlan Suderman wrote in a note quoted by Reuters.
Chicago Board of Trade July soy oil futures settled up 2.29 cents at 84.72 US cents a pound. The contract peaked at its all-time high of 85.77 cents earlier in the session and is another warning about the impact the ban will have on a huge range of products in supermarkets, cafes, takeaway food outlets, cosmetics, soaps and similar products.
The first ban threw world vegetable oil markets into confusion as traders and others sought out supplies of the vegetable oil that is widely used in food manufacturing.
It is the third time this year that Indonesia has restricted exports of palm oil to try and ease domestic price (and political) pressures – but this time is the first outright ban on exports.
The ban, if prolonged will send already surging food price inflation around the world even higher.
Food price inflation has surged in the wake of Russia’s invasion of Ukraine, a major exporter of wheat, corn, barley, sunflower oil and rapeseed oil.
The loss of shipments from Ukraine, the world’s top supplier of sunflower oil, and drought in the world’s top soybean oil exporter Argentina has seen a sharp rise in global vegetable oil prices.
At the same time Russian exports of key agricultural commodities have been restricted as well, adding to the price pressures.
As we saw with the march quarter Consumer Price Index on Wednesday, there was widespread sharp price rises among grocery items and the Indonesian ban will add further pressures in coming months.
Palm oil is the world’s most widely used vegetable oil and is used in the manufacture of many products including biscuits, margarine, laundry detergents and chocolate.
The United Nations food agency reported earlier this month that food prices had jumped nearly 13% in March to a new record high
“This is bad news for vegetable oil consumers in many countries which currently strongly depend on palm oil in view of shortages in sunflower oil, rapeseed oil and soy oil,” Siegfried Falk, an analyst at Hamburg-based Oil World, told Reuters.
Prices have now risen by almost 50% so far this year and look certain to rise further with Indonesian ministers making no apology for the ban at the weekend as they defended the move as an attempt to meet growing consumer complaints about inflation.
It is the second time this year that Indonesia has disrupted a key world commodities market.
In January the country banned exports of thermal coal – of which it is the world’s leading exporter – because many shippers were not following rules and delivering 25% of production to local power stations. The ban was relaxed when deliveries to local power stations improved.
That sent world thermal coal prices sharply higher (especially in China, Indonesia’s leading market) and the Russian invasion of Ukraine and sent world prices higher to record levels above $US440 a tonne (according to the Newcastle thermal coal index)
Indonesia’s ban on palm oil exports shocked global edible oils markets that already reached record high prices this year, and sparked alarm among major importers of the cooking medium.
Palm oil – which is used in the manufacture of many products including biscuits, margarine, laundry detergents and chocolate – is by far the most produced, consumed and traded edible oil in the world, and accounts for roughly 40% of the supply of the top four most popular edible oils: palm oil, soybean oil, rapeseed oil (canola) and sunflower seed oil.
Australia is a major grower and producer of canola for processing into oil. Australian canola supplies are uncertain due to the heavy rain in February through April in some key growing areas of NSW
Before the ban, the US Department of Agriculture estimated that about 77 million tonnes of palm oil were expected to be produced globally this year.
Indonesia is its top producer, exporter and consumer, accounting for around 60% of total supply. Malaysia is the second largest supplier with about 25% of global supply share.
India is the top palm oil importer, while China, Pakistan, Bangladesh, Egypt and Kenya are other major buyers.
