High reserves of palm oil have also affected the price of fresh fruit bunch (FFB) in Indonesia.
PETALING JAYA: Indonesia is scheduled to implement B35 biodiesel at the end of this month to spur domestic palm oil consumption.
It is also projected that the country will lower its palm oil export levy as part of efforts to reduce palm oil inventories.
This follows an export ban from the end of April to the end of May, during which palm oil stockpiles in Indonesia built-up.
“This (B35) policy is aimed at reducing palm oil inventories in Indonesia.
“It will help raise domestic palm oil usage, reduce stocks and improve domestic prices sentiment,” said CGS-CIMB Research in a report yesterday.
High reserves of palm oil have also affected the price of fresh fruit bunch (FFB) in Indonesia.
“It was reported that the price of FFB in several areas of oil palm plantations in Indonesia was below 1,000 rupiah (30 sen) per kg as the storage tanks are full,” said CGS-CIMB Research.
To improve domestic prices of the commodity, the research house expects that Indonesia will set the minimum price of FFB at 1,600 rupiah (47 sen) per kg for palm oil producers.
CGS-CIMB Research maintained that the B35 policy is not sudden as the government has been making announcements to increase mandatory levels of biodiesel in fuel since the beginning of this month.
It noted that in view of the estimated absorption rate of crude palm oil (CPO) at 134,000 tonnes per month, it is projected the policy will be some time before achieving its targets.
Overall, the CPO price in Indonesia has dropped nearly 50% to 7,288 rupiah (RM2.16) per kg at the beginning of this month, since the lifting of its export ban.
Other than the B35 policy, Indonesia has also undertaken measures to raise the export rights multiplication factor to seven times, from the previous rate of five, of their domestic market obligation since July 1, 2021.
Limited availability of ships has also impeded exports of the commodity, according to the Indonesian Palm Oil Association.
Lowering the palm oil export levy will likely be Indonesia’s next move to tackle its high palm oil inventories.
The research house’s top picks for the sector are Kuala Lumpur Kepong Bhd
and Wilmar International with a target price of RM28.64 and S$5.69 (RM17.94), respectively.
CGS-CIMB Research maintained a “neutral” sector rating for the industry.
