Thursday 14 Nov 2024
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KUALA LUMPUR (May 23) : Bursa Malaysia Plantation Index fell as much as 262.71 or 3.18% to 7995.09 on Monday (May 23), as share prices of major planters led the decliners list after Indonesia reimposed domestic sales requirement on palm oil.

The index, which opened higher at 8271.14, closed 216.69 or 2.62% lower at 8041.11.

Kuala Lumpur Kepong Bhd was the top loser by value on Bursa, losing 48 sen or 1.78% to RM26.42. IOI Corp Bhd, which was the third top loser, dropped 32 sen or 7.27% to RM4.08.

Genting Plantations Bhd and Sime Darby Plantation Bhd were also among top losers, falling 32 sen (3.71%) and 16 sen (3.09%) to RM8.30 and RM5.02 respectively.

On Friday (May 20), Indonesia announced that it will reimpose a domestic sales requirement on crude palm oil, a day after its president Joko Widodo announced that the country will lift the palm oil export ban effective Monday.

In a note on Monday, CGS CIMB analyst Ng Lee Fang said the potential impact of the move on Indonesian palm players will depend on the sales volumes and price obligation to be set by the government for the domestic sales requirement.

“The plan to reimpose the Domestic Market Obligation (DMO) rules came as a slight surprise to us. This is because the government had previously lifted the 30% DMO in favour of higher export levy on March 18,” she said.  

While the government has yet to reveal the details of DMO and Domestic Price Obligations (DPO), she suspects the details could be finalised over the next few days.

To recap, the previous DMO rules required all palm oil exporters to sell 20% to 30% of their planned exports in the domestic market at a maximum price of IDR9,300 per kg (US$641 per ton) for crude palm oil (CPO) and IDR10,300 per kg for olein.

The CPO price under the DPO then was at a 34% discount to the current CPO price in Indonesia of IDR13,985/kg.

“Due to lack of details, it is too early to conclude how the DMO will impact the market or palm oil players,” said Ng.

According to her, the plan to make sure that 10 million tonnes of cooking oil remains in the country is 1 million tons higher than Indonesia’s total palm oil consumption of 9 million tonnes for food purposes in 2021, based on statistics by the Indonesian Palm Oil Association.

“If the policy implementation is improved from the previous ruling (easier administrative process) for palm oil producers and exporters, we expect the potential disruption to exports to be minimal,” she said.

Another key area to watch, according to her, is how the government determines the size and price of the DMO for palm oil producers and the mechanism to improve the distribution of cooking oil in Indonesia to ensure sufficient supply.

“Should the government require CPO producers to sell 20% of their production at IDR9,300/kg in the domestic market, the likely negative impact to their average CPO price would be around IDR937/kg (or US$65/tonne) from the current levels,” she said.

Ng reiterated a neutral call on the sector.

In a separate note on Monday, PublicInvest Research analyst Chong Hoe Leong said the latest policy will reduce Indonesia’s palm oil supply in the global market but more palatable than the entire shipments being banned.

“Nevertheless, the multiple changes to palm oil are expected to cause more volatility to the CPO prices,” he said.

He maintained a neutral call on the plantation sector, with a full CPO price forecast of RM5,000 per ton.

To make it a fruitful policy, he opined that the authority should have a strict and fair mechanism that ensures all palm oil exporters contribute to local supplies.

According to him, the recent palm oil export ban lifted the monthly cooking oil stock to 109% of monthly demand, from 33% in March, and lowered the average price of bulk cooking oil from IDR19,800 to IDR17,000 per litre.

“Ahead of the high production season, we think the latest policy may also be short-lived as domestic cooking oil stocks could expand in the near-term,” he added.

Edited ByKamarul Azhar
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