Indonesia will gradually ease its palm oil export rules from May and reduce the domestic sales obligation for its palm oil producers from May, the Commerce Ministry said on April 27.
The world’s largest vegetable oil exporter tightened export quotas from palm oil companies in January to control the cost of edible oils in the domestic market ahead of the month of Ramadan, which begins in March.
As part of the latest ruling, Jakarta said the ratio of export quotas for local palm oil companies will be set at four times domestic sales needs, compared to the current quota of six times.
While this will curb exports in the short term, the Commerce Department said it will release quotas it has been holding back in recent months over the next nine months.
Trade sources said the government froze around 3 million tons worth of palm oil export licenses earlier this year.
The announcement could limit exports in the short term, but traders were undecided about the impact on markets, citing weak demand in destination countries and falling global prices for competing vegetable oils.
“The market is likely to ignore much of this news as this is a confirmation of what the market was expecting. Right now there isn’t much demand from India and China…unless demand gets back into full swing, then we could see prices reacting much more,” a Malaysia-based trader told S&P Global Commodity Insights.
The eagerly-watched third-month crude palm oil contract on the Bursa Malaysia futures exchange fell 37 points to MR 3,533/mt in afternoon trade.
A surge in production from Indonesia and weak prices for sunflower and canola oils worldwide will continue to put pressure on palm oil prices in May, traders said.
The ruling is fairly neutral as both Malaysia and Indonesia are grappling with demand issues, said Lingam Supramaniam, director of Malaysia-based commodities company Pelindung Bestari.