JAKARTA/MUMBAI, Jan 29 : Indonesia's plan to limit palm oil exports has upended the global edible oil market by making what is the traditionally cheapest vegetable oil the costliest among the three major edible oils traded across the world.
Indonesia, the world's biggest palm oil producer and exporter, on Thursday announced a 20% mandatory domestic sales obligation for all palm producers in a bid to cool local cooking oil prices.
The move lifted Malaysian palm oil futures to a record high of 5,639 ringgit ($1,346.47) per tonne on Friday.
The price rise is likely to prompt key buyers such as India, China, Pakistan and several African countries to shift to rival soyoil and sunflower oils, which are available at a discount to palm oil for February shipments.
"Indonesia's exports curbs have changed market dynamics," said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage and consultancy firm based in Mumbai, India.
"Already, the edible oil market was disrupted by weather and labour issues. Government policies have now added to the uncertainty."
Crude palm oil (CPO) is being offered at around $1,500 a tonne, including cost, insurance and freight (CIF), in India for February shipments, compared with $1,490 for crude soybean oil and $1,460 for crude sunflower oil, traders said. India is the world's largest edible oil importer.
A year ago, palm oil was trading at a discount of around $100 and $250 per tonne to soyoil and sunflower oil respectively, both perceived to be of higher quality than palm oil.
Buyers have started shifting to soyoil and sunflower oil for February and March shipments, said a Mumbai-based dealer with a global trading firm.
"Palm's rally is doing demand destruction. Prices need to come down or it will lose market share," the dealer said.
Price-sensitive Asian buyers traditionally relied on palm oil because of low costs and quick shipping times, but now they will source more South American soyoil and sunflower oil from the Black Sea region, said a Singapore-based dealer.
However, surplus supply of soyoil and sunflower oil is limited and soybean crushing will need to pick-up to fulfill soyoil demand, he said.
While India buys palm oil from Indonesia and Malaysia, it mainly imports soyoil from Argentina and Brazil and sunflower oil from Russia and Ukraine.
"Sunflower oil supplies are not certain as tensions are rising between Russia and Ukraine," the Singapore based dealer said.
Russia said on Thursday it was clear the United States was not willing to address its main security concerns in their standoff over Ukraine, but both sides kept the door open to further dialogue.
Neither Argentina nor Ukraine have the capacity to fully compensate a sharp reduction in palm oil supplies, so prices of all edible oils will likely climb, said the Mumbai-based dealer.
"With higher demand, soyoil and sunflower oil prices will also move higher. Indonesia's plan will give support to all vegetable oil prices," he said. ($1 = 4.1880 ringgit).