European vegetable oil traders wary of Indonesia

European vegetable oil traders wary of Indonesia

LONDON (Reuters): European vegetable oil traders are keeping a wary eye on the supply situation in Indonesia, where high exports of crude palm oil are causing local supply problems.

Indonesian traders estimate that exports of crude palm oil doubled in June to 200,000 tons from 100,000 in May.

The price of crude palm oil has soared, with traders reporting 6,200-6,500 rupiah/kg being paid ex-factory, against a government target of 3,500-4,000 rupiah.

Indonesia is expected to produce around six million tonnes of crude palm oil in 1998, against five million in 1997. Output should be more than enough to meet local demand, with only the high level of exports causing problems.

In Europe traders are expecting some kind of action by the Indonesian government to protect the local cooking oil market.

"We don't think there will be an all-out ban on exports as there was at the beginning of the year, but we expect them to do something," said one.

Indonesia banned the export of crude palm oil and its byproducts at the end of December.

The ban was ended in April and replaced with an export tax of 40 percent.

Traders said most of the main shippers of crude palm oil from Indonesia were keeping out of the market.

"The market is lackluster because the major players are keeping out, waiting for fresh developments," said another trader.

Stocks of palm oil in Rotterdam stood at 79,469 tonnes as of June 29, against 74,295 the previous week. The total amounts to about two months supply.

"When Indonesia banned exports earlier in the year we were able to get crude palm oil from Africa, but that supply is drying up due to seasonal factors." a trader said.

However, traders said European consumers, who traditionally prefer to refine their own oil, now seemed willing to accept RBD palm oil from Malaysia.

"Consumers will now take Malaysian RBD palm oil because they know it is a reliable supply," a trader said.

In Jakarta, hundreds of people queued up for cheap cooking oil at a government-run outlet yesterday as supplies dwindled due to a surge in CPO exports and prices soared, traders said.

One trader said ex-factory prices of palm olein, the refined form of CPO, rose sharply to 6,200-6,500 rupiah (about 41-43 U.S. cents) per kg in Jakarta as supply had all but run out.

Olein was available at about 5,300 rupiah/kg last week.

"It is almost impossible to get any olein today and prices have soared," the trader said.

The sharp price hike came despite the government's efforts to keep prices as low as 3,500-4,000 rupiah/kg at the retail level to limit the spiraling cost of basic commodities.

The trader said ex-factory prices in Surabaya, the country's second-largest city, had reached 7,000 rupiah/kg.

Trade and Industry Minister Rahardi Ramelan was considering having crude palm oil from state-run plantations sold solely in the domestic market in an effort to ease supply shortages and stabilize prices.

"The breakthrough is for all CPO products to be sold in the domestic market. That's the thinking," he said.