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Palm oil surges 5% as market prepares for Indonesia export ban

(April 27): Palm oil jumped more than 5% while rival soybean oil hit a fresh record high as traders prepare for the start of Indonesia’s export halt.

Indonesia reiterated late Tuesday that the ban is limited to exports of RBD palm olein and will take effect on April 28. Crude palm oil shipments can continue. The move will remain in place until domestic prices of cooking oil fall to the government-set limit, and authorities will assess local supply regularly.

The world’s biggest palm oil producer also said the temporary ban does not violate the World Trade Organization’s rules as it seeks to secure supply for the domestic market. The policy has roiled the global US$50 billion palm oil market as Indonesia initially said it would ban all exports of cooking oil before clarifying days later that only certain products will be halted.

Futures for July delivery rose as much as 5.4% to RM6,743 a tonne in Kuala Lumpur, putting the tropical oil on track for a 18% gain this month. Soybean oil, palm’s closest rival, climbed 1.3% to a fresh record.

“Demand is a little slower at current price levels,” said Paramalingam Supramaniam, director at Selangor-based broker Pelindung Bestari. “A downward correction will prompt more buying activity while market waits for Malaysian production estimates from millers and growers.”

While the policy is less strict than feared, it could still have serious ramifications for the world as Indonesia accounts for a third of global vegetable oil trade. Global food prices are already at an all-time high and can ill afford another disruption to food supply after massive chaos sparked by the war in Ukraine.

Traders are seeking clarity on how Indonesia’s ban will affect the vessels that have been contracted for palm olein but could not leave Indonesia in time, he said, as many would be unable to renegade contracts on such short notice.

The policy will start a day before the Eid al-Fitr holiday. Indonesian markets will be shut on Friday and all of next week, while Malaysia will be closed from Monday to Wednesday.


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