Palm oil futures soared, as Indonesia signalled it would extend its period of duty-free exports of the vegetable oil, in a move viewed as cutting the chances of a short-term “inventory dump” on the international market.
Palm oil futures for December stood up 5.1% at 3,600 ringgit a tonne in late deals.
Earlier the gains reached 6.2%, to take the contract to 3,637 ringgit a tonne and its 20-day moving average on a continuous chart, a level which has over the past two weeks shown a tendency to represent a price ceiling.
Palm oil vs soyoil
Tuesday’s headway was attributed in part to playing catch-up with soyoil, the rival vegetable oil, which in Chicago gained 2.9% on Monday, in a move attributed in turn in strength in crude oil.
Vegetable oils, in being used largely in making biodiesel, are influenced in price terms by energy markets.
The premium of soyoil over palm oil reached 89% on Monday, on a closing price basis for most-traded contracts, compared with 67% a month before, and the 10.5% heading into 2022.
Tuesday’s palm price spurt narrowed the gap back to 80%.
‘Bulls are looking for any excuse’
Dorab Mistry, the influential vegoils analyst, told GrainPriceNews that “the rally today in palm was following through from last night’s rally in Chicago soyoil futures and the rally in WTI [West Texas intermediate crude oil].
“Palm bulls are looking for any excuse to push prices higher.”
Indeed, palm’s gains came even as Indonesia, the top palm oil producer and exporter, signalled a potential delay by two months, to the end of December, to the reimposition of a tax and levy on shipments – a move which might be considered a negative to world prices.
“The plan is for an extension… until the end of the year,” Indonesia’s chief economic minister, Airlangga Hartarto, said.
Indonesia lifted the export tax and levy in July, in response to a surge in domestic stocks caused by a short-lived ban on shipments aimed at keeping the country’s cooking oil prices in check.
Indonesia’s palm inventories nonetheless, at 5.91m tonnes, remained 30% higher at the close of July than a year before, according to data from industry group Gapki.
‘Inventory dump’
However, while a tax cut implies easier palm oil exports, the move was viewed by some investors as a short-term positive for palm oil prices nonetheless, in reducing the threat of a selling spree of Indonesian supplies this month to beat the current October 31 deadline for reimposing the export tax and levy.
“Indonesia still seems to have quite a back-up of supplies to sell, and there is a risk at the moment of a bit of an inventory dump before the tax is reintroduced,” a European oilseeds trader told GrainPriceNews.
“Hopefully, by the time the end of December comes, the stocks will have been drawn down. Reimposing the tax then would be a safer bet.”
‘Huge mistake’
Mr Mistry said two weeks ago that a delay by Indonesia to the reimposition of the export tax regime would “boost exports and bring down local stocks to normal levels.
“My advice to the Indonesian government, and I have discussed this with them on numerous occasions, is you need to remove all export taxes and levies until at least December 31,” he told the Globoil conference.
The country “made a huge mistake” with its export ban, as imposed in April before being lifted three weeks later, while making a “mistake” in allowing the palm oil export tax and levy to reach nearly $550 a tonne.
“That led to local shortages, smuggling and very high local prices.”
The comments came as forecast palm oil prices falling to 2,500 ringgit a tonne by the end of 2022 – an outlook which he told GrainPriceNews on Tuesday, remains unchanged.