Indonesia trimming palm oil stocks with discounts, India sales

Highlights:

• India could buy 2 mln T in Aug-Nov from Indonesia
• Export levy waiver boosts Indonesia's exports
• Stocks could fall to 4.5 mln T by end-Sept
• Indonesian sellers offer discount vs Malaysian suppliers

Indonesian palm oil producers are whittling down their hefty inventory overhang with discounts versus rivals and aggressive sales to India, where demand is picking up for next month's Diwali festival, industry officials said.

Backed by Jakarta's waiver of palm oil export levies, which was recently extended to October 31 and reversed course from an export ban in May that had shut them out of global trade, producers are moving in to lighten up their stocks at tempting prices.

And India, the world's biggest importer of vegetable oils, is buying - offering potential support to benchmark palm oil futures prices while threatening to undercut imports of rivals soyoil and sunoil.

"India has been aggressively buying palm oil from Indonesia since prices are attractive and festival demand is approaching," said Sandeep Bajoria, the chief executive of vegetable oil brokerage and consultancy Sunvin Group.

"We are expecting imports of 2 million tonnes between August to November."

That would be triple India's palm oil imports from Indonesia, the world's largest producer, in the previous four months, from April to July, according to data compiled by trade body The Solvent Extractors' Association of India (SEA).

The momentum in shipments could help to bring Indonesia's palm oil stocks, which ballooned to 6.69 million tonnes by end-June from around 4 million tonnes at end-2021, back to 4.5 to 5 million tonnes by end-September, said Eddy Martono, Secretary General at the Indonesian Palm Oil Association (GAPKI).

The drawdown will also get some help, he said, from a slowdown in production now that the peak harvest period has passed.

The stocks were built up during Jakarta's steady escalation of export restrictions early this year, culminating in the drastic three-week export ban.

The government was aiming to bring down local edible oils prices but in the process caused world prices to surge, hitting a record 7,268 Malaysian ringgit ($1,598) per tonne.

Producers in Malaysia, the second-largest palm oil producer, along with rival oils like soyoil and sunoil, rushed in to grab Indonesia's market share.

Sunvin Group's Bajoria noted that soyoil and sunoil, usually substantially more expensive than palm oil, became comparable in price for a few months and squeezed demand from India.

Malaysia has also displaced Indonesia so far in the 2021/22 marketing year to end-October as the top palm oil supplier to India, according to SEA data.

The Indonesian government ended up scrapping the ban, and in mid-July also began waiving export levies that had been used to fund biodiesel and replanting programmes, growing more worried instead about bulging palm oil stocks and beleaguered palm farmers.

"Indonesian sellers are now trying hard to regain the lost market share by offering discounts," a New Delhi-based palm oil dealer said.

Palm oil futures prices have now dropped by nearly half from their record high and palm oil is again at a sizeable discount to rival oils, offered at $940 a tonne including cost, insurance and freight (CIF) to India for September shipment, compared with $1,288 for crude soyoil, dealers said.

And Indonesian producers are taking back business from their Malaysian neighbours with aggressive discounting.

"Right now, Indonesia sellers are very competitive compared to Malaysia. They are giving a discount of up to $5 per tonne under Malaysia," said a Mumbai-based dealer with a global trading firm.

They had been offering discounts of as much as $15 in July-August, when the export levy was first removed, he said.

Indonesian Trade Minister Zuklifli Hasan also urged India to buy more palm oil from his country when he visited India last month, said a senior industry official who attended the minister's meeting with Indian buyers. The official asked not to be named as the meeting was private.

With Indonesia's stocks returning to normal during this window of waived export levies and robust India demand, however, market players expected it was only a matter of time before Jakarta returns to its typical export levies.

"Once stocks come down, it will start levying the exports," said a Mumbai-based dealer. "Palm oil is big contributor in its tax kitty. It can't waive off taxes indefinitely."