Indonesia removes palm oil export levy from July 15-August 31

18 Jul 2022 | Regina Koh

The world’s largest palm oil producer has removed its export levy for all palm oil products from July 15-August 31, in its latest move to incentivize exports amid an excess of supply at home.

According to an official document from Indonesia’s finance ministry circulated Saturday, the export levy will be reduced to $0/mt for the above period and reinstated from September 1, when a progressive rate structure will apply depending on the crude palm oil (CPO) reference price.

The maximum export levy for CPO was previously set at $200/mt from June 14 to July 31 if the CPO reference price exceeded $1,500/mt, following which Indonesia had planned to raise it to $240/mt from August 1.

However, a combination of rising domestic inventory levels, a sluggish export pace and pressure from farmers facing an oversupply of palm fruit has caused the government to walk back on previous plans and consider new measures to raise its export volumes.

The swell in inventories has stemmed largely from a three-week palm oil export ban which Indonesia imposed on April 28 to control high prices of local cooking oil.

Since lifting the ban on May 23, various measures have been put in place – including reducing export taxes, launching a special export acceleration program, raising export quotas, and increasing its biodiesel blending mandate from B30 to B35 – to try and move existing inventory.

However, the struggle remains, with latest figures from the Indonesian Palm Oil Association (Gapki) pegging end-May stock levels at 7.23 million mt.

Meanwhile, market sources estimate current inventory levels at anywhere between 7-9 million mt, while CGS-CIMB placed end-June stock levels at 8-8.5 million mt.

The supply glut has also caused palm oil mills to slow down purchases of fresh fruit bunches (FFB), with farmers decrying the government’s export policies as unsold palm fruit have been left to rot and prices of FFB have fallen.  

Senior minister Luhut Pandjaitan earlier said that reducing the palm oil export levy and increasing exports will allow the price of FFB in the market to gradually rise.

“Removing the export levy will greatly help farmers to get our FFB prices to a better level. Based on our calculations, the removal of the levy will raise prices of CPO by Rp 3,000/kg ($200/mt) and this will cause an increase of Rp 1,000/kg ($66.73/mt) for FFB prices,” said Dr Gulat Manurung, Chairman of the Indonesian Palm Oil Farmers Association (Apkasindo).

“Even though it’s still low, we are still grateful for the Rp 1,000 price increase and hope other costs will be removed soon as well,” he added.

According to Dr Gulat, average FFB prices in Indonesia are currently between Rp 1,450-1,850/kg ($96.80-123.40/mt), where they were previously Rp 900-1,250/kg ($60-83.40/mt).

The extent to which this latest move succeeds in easing Indonesia’s inventory pressures remains in question, with market sources citing limitations created by the current vessel tightness and the existing domestic market obligation (DMO) requirement which caps sellers’ export capabilities based on the amount they sell locally.