• Stay NEUTRAL. Indonesia has reversed its earlier decision and is imposing a ban of all exports of PO effective 28 Apr. This should worsen the pressure on inflation, and further encourage hoarding activities. We believe the winners of this move are pure Malaysian players as well as those with downstream capacities in Malaysia. Keep BUY on Sarawak Oil Palms (SOP) and Ta Ann (TAH).

• Indonesia has reversed its earlier decision to only ban the exports of RBD palm olein, and has decided to ban all exports of PO effective 28 Apr. The export ban will now cover CPO, all refined palm oil and used cooking oil, among other palm oil products.

• Flip flopping of policies is never viewed positively. This move will likely push vegetable and palm oil prices up further, although it will also create more uncertainty in the market. With this move, it would seem the Indonesian Government has ascertained that some refiners are not complying with the guidelines and are trying to circumvent the previous ban by exporting out other products like CPO and RBD palm oil instead. With this hard stance, the Government is punishing errant refiners by punishing the whole Indonesian plantation industry. Recall, Indonesia produces 46m tonnes of PO annually, of which 27m tonnes are exported.

• With this move, all players in Indonesia would likely suffer, although pure upstream exporters would likely suffer more. We believe there would be a significant shift in the demand-supply mechanics in the country, causing domestic supply of CPO to be abundant, pushing down domestic CPO prices, thus allowing downstream planters to have their pick of CPO supplies at low prices. The downstream players in Indonesia would still be able to circumvent this ruling by holding back their refined oil stocks to benefit from the higher prices, if and when the Government lifts the ban. Refined oils can be kept for as long as 6-8 months with no impact to quality, and after packaging, can be kept for a further 12-18 months. However, doing this could result in incurring more wrath from the Indonesian Government and potentially, more crackdowns.

• NEUTRAL; pick the winners. Vegetable oil prices will spike as a result of this news, but should Indonesia change its stance this will also reverse quickly. We continue to stay NEUTRAL on the sector, advocating a trading strategy. BUY the winners – pure planters in Malaysia (SOP, TAH). Downstream players in Malaysia with no exposure to Indonesia would also benefit given the lack of competition from Indonesia, and this would include SOP, IOI Corp and Genting Plantations.

Source: RHB Securities Research - 28 Apr 2022