Indonesian exports of palm oil could fall due to the combined effects of an increase in the country’s domestic market obligation (DMO) and a 5% increase in its palm oil biodiesel mandate from 1 February, Mintec Global reported.
The government’s move to change its DMO from 1:8 to 1:6 on 1 January meant that a higher proportion of palm oil that would have been exported would now find its way into the domestic market, the 6 January report said.
The DMO requires palm oil exporters to sell a portion of their products domestically before they can export them.
In addition, Indonesia’s announcement that it would move to B35 – a 35% palm biodiesel blend in diesel fuel – from the B30 rate in place since January 2020 would lead to around 120,000 tonnes/month, or 1.44M tonnes/year of palm oil supply being consumed domestically.
As Indonesia is the largest palm oil producer globally, the changes could lower palm oil supply and lead to higher prices in January, according to the report.
A trader told Mintec, “it shouldn’t come as a shock that the DMO has changed. Indonesia has been clear that it will move when market conditions move. Yet, what is more, surprising is that the B35 mandate finally has a start date as it has been up in the air for some time”.
“These two factors combined are likely to sap supplies from Indonesia but I don’t think prices are going to go up significantly. Any good trader should have had these priced in. We also have to consider the fact that the other vegetable oils are broadly cheaper now, and palm oil has more competition than it did a few months ago.”
