Palm oil export ban: Light at end of the tunnel?

Palm oil export ban: Light at end of the tunnel?

LONDON (Reuters): Reports coming out of Indonesia yesterday
morning seemed to give the European vegetable oil market hope of
light at the end of the tunnel, or is there?

"There is light, but it's only a candle and that can soon be
blown out," said one trader.

According to newspaper reports, Indonesia will keep the ban on
exports of crude palm oil and olein until cooking oil is
affordable at the price of 3,000 rupiah per kilo in the domestic
market.

Indonesian traders said the price to consumers was currently a
little above 3,000 rupiah.

The Director General of Agricultural and Forestry Industries
at the Ministry of Industry and Trade, Sujata, was quoted as
saying in Jakarta the government does not plan to lift the
embargo until supplies of crude palm oil and olein were
sufficient to lower the price of cooking oil to 3,000 rupiah per
kilo.

He said the government was determined to lower the price of
cooking oil in the domestic market and it was likely the 3,000
rupiah per kilo target can be reached in the not-to-distant
future.

This coupled with Tuesday's news of a temporary lifting of the
ban on palmkernel oil and palm stearin exports until March 14 has
been the first good news the market has had for some time and
prices reacted accordingly.

However, in the cold light of day the market's problems seem
far from over.

"For a start no one is kidding themselves that the ban is
going to be lifted before the elections in early March. Even if
the ban was lifted, say on April 1, it could be sometime before
palm oil is being shipped again," said one trader.

Traders said it is very unlikely that vessels will have been
left standing idle, waiting for the ban to end.

"The first thing will be to get ships into position and then
there is the Federation of Oils Seeds, and Fats Associations
(FOSFA International) rules on the last usage of a ship," said
another trader.

Under the FOSFA rules there are server restrictions on what
the vessels have carried for the last three voyages.

For example a vessel cannot have carried petrol during the
last three trips.

"The master must be able to prove that the vessel has been
thoroughly cleaned, tanks, pumps, heating coils, everything that
the palm oil will come into contact with," said another trader.

"Also the tank must be completely dry, no puddles of water in
them," he added.

Traders said although there will be some kind of warning that
vessels are wanted, it will depend where the ships are and what
they have carried as to how quickly they can be bought into use.

"You cannot send any old ship to get palm oil these days and
if they have been chartered for other work people are going to
have to wait for them to become available," said one trader.

But the problems don't stop at the availability of shipping.

"There is also the question of how the palm oil has been
stored," said a trader.

"People will want to known if the crude palm oil has been kept
in tanks that have been previously used for palmkernel oil, which
can effect the quality," the trader added.

Another problem could be the Free Fatty Acid (FFA) levels
which rise the longer the oil is stored and once they have past
five percent the oil becomes unmarketable.

"It can be sold as palm fatty acid, but there is not a great
demand for that," said one trader.

Traders said the palm oil can be stored for up to six weeks
or maybe longer, but it would depend on the condition of the
tanks and how well maintained they are.

"It seems the tanks are full, which is why they are allowing
exports of palmkernel oil and stearin, so what is happening to
the fruit that cannot be harvested? Is it just being left to rot.
If it is that is a lot of dollars the Indonesian's are going to
lose" said a trader.

According to the latest reports Indonesia has national crude
palm oil stocks of 157,000 tonnes and olein stocks of 64,000
tonnes.

Traders estimate that Indonesia produces around 500,000 tons
of crude palm oil a month of which it uses 300,000 to 350,000
tons on the local market.

Even when the ban is lifted and shipping problems have settled
down there could be further problems.

"I feel sure we will see a double drop in the price of palm
oil on the international market once the taps are turned back
on," said one trader.

A few buyers have been switching to soft oils as a replacement
for palm oil, and Chicago soy oil futures have seen some
increases as a result of the ban.

Traders said once the ban is lifted the price of palm and soft
oils will fall, but then they expected palm oil prices to fall
again as sellers try to win back markets lost to soft oils as a
result of the ban.

"I think we are going to be feeling the shock waves of this
ban for sometime to come and who at the end of the day is going
to trust Indonesia as a supplier," said a trader.