Palm oil rallied after top producer Indonesia said it would ban all exports of cooking oil, a surprise move that threatens to worsen global food inflation and aggravate volatility in crop markets still reeling from Russia’s invasion of Ukraine.
Indonesia on Friday said that the shipment halt would start from Thursday and last until the government deems a domestic shortage resolved.
Benchmark palm oil futures rose as much as 7 percent, while Indonesia plantation stocks tumbled.
Photo: AFP
The move by Indonesia, which accounts for one-third of global edible oil exports, adds to a raft of crop protectionism around the world since Russia’s invasion of Ukraine in February, as governments seek to protect their own food supply with agriculture prices surging.
The ban threatens to further fan food inflation, which has been surging at a rampant pace, and raises the risk of a full-blown hunger crisis.
“The halting of shipments of the cooking oil and its raw material, widely used in products ranging from cakes to cosmetics, could raise costs for packaged food producers globally,” said Avtar Sandu, senior manager of commodities at Phillip Nova.
The surprise move has “left many questions unanswered especially as it comes at a time when other edible oils like sunflower oil supplies are facing issues due to violence in the Black Sea region,” Sandu added.
Palm oil futures for July delivery rose 7 percent to 6,799 ringgit (US$1,560) per tonne in Kuala Lumpur, the highest since March 11, before paring gains. The nearby May prices climbed more than 9 percent to a record for the contact. Soybean oil, palm’s closest rival, rose as much as 1.9 percent in Chicago to near all-time highs.
Local shortages of edible oils have roiled Indonesia, leading to street protests over high food prices and the detention of a trade official in a corruption case.
Managing food prices is a key priority for Indonesian President Joko Widodo, especially as the country that is home to the world’s largest Muslim population heads into the Eid al-Fitr holiday, usually marked with feasts and celebrations.
Just days earlier, the Indonesian Ministry of Industry said distribution of its domestic cooking oils has met national demand, which makes the export ban even more unexpected.
The shortage of domestic supply at retailers, high palm oil prices and strong festive demand might have “triggered the government to press the panic button,” said Sathia Varqa, owner of Palm Oil Analytics in Singapore.
Although inventories are swelling after Indonesia’s export curbs in February and last month, there are still problems in the flow of cooking oil from refineries to packaging companies down to retailers, he said.
This is hitting availability just as Eid al-Fitr nears.
“People are excited to celebrate big time after two years of muted celebration due to the [COVID-19] pandemic,” he added.
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