In a quick reversal from an announcement made just a day earlier that the ban would only apply to RBD palm oil, the Indonesian government has decided to expand its edible oil export ban to include crude palm oil and used cooking oil. Indonesian President, Joko Widodo said the measure is to temporarily safeguard the local cooking oil supply, and the export ban will be lifted once domestic demand is fulfilled. Following the surprise U-turn, CPO futures rallied RM587/mt or 9% to RM6,987/mt. Plantation stocks are likely to be in focus today given the sharp rally in CPO prices. Pending our review on the CPO price forecast, we affirm our Overweight call on plantation sector.

• Surprising U-turn. In the latest round of flip-flops, Indonesia has once again widened the scope of its export ban on raw materials to include crude and refined palm oil. The remark is in contrast with the statement on Tuesday that the ban would apply only to RBD palm olein. It will now cover not just refined, bleached and deodorized (RBD palm olein), but also other palm oil derivatives including crude palm oil, red palm oil, palm oil mill effluent and used cooking oil.

• Causing jitters to global vegetable oil supplies again. India, the biggest consumer of Indonesian palm oil, imports around 13-13.5m mt of edible oils, of which around 8-8.5m (63%) is palm oil. Almost 45% comes from Indonesia and the remaining from neighbouring Malaysia. Following the complete palm oil export ban, the market is anticipating monthly supplies of around 300,000-325,000 mt of palm oil to be taken off from global markets. It will result in heightening tensions to the already tightening global vegetable oil markets.

• Sarawak Plantation and Ta Ann are the top picks. Following the strict measures, Indonesian plantation players are the losers while Malaysian pure upstream players are the winners. Malaysian plantation players such as Genting Plantation, KLK, Sime Darby Plantation and TSH that have strong exposure to Indonesian market, would not be able to fully capture on the current strong CPO price performance due to the hefty export duties and zero export policy in place following the export ban.

Source: PublicInvest Research - 28 Apr 2022