Indonesia's ministry of trade will introduce an export permit requirement on palm oil residues, which are often used as biofuels feedstocks, effective from 25 October.
The residues consist of palm oil mill effluent (Pome) oil, high acid palm oil residue (Hapor), and empty fruit bunch (EFB) oil. They fall under HS codes 2306.60.90 and 2306.90.90, and join existing restrictions on palm derivative products including refined, bleached, and deodorised (RBD) palm oil, RDB palm olein and used cooking oil (UCO).
Exporting entities now have to fulfil their cooking oil domestic market obligation (DMO) before they can receive an export permit for Pome oil, Hapor and EFB oil. To fulfill the DMO, companies need to sell palm oil into the domestic market at a ratio of 4:1 for loose oil or 9:1 to packaged oil as part of the Minyak Goreng Rakyat (MGR) programme.
The inclusion of residue products such as Pome oil means even exporting entities dealing with only Pome oil will now have to participate in the domestic vegetable oil market to fulfil the DMO. This may squeeze some participants out of the market should they be unable to compete with bigger participants.
Alternatively, exporting entities that do not trade vegetable oil may choose to purchase export permits from entities which have met the DMO on cooking oil, which would increase Pome export cost.
Some participants estimate the restriction will drive an increase of around $10-20/t in Pome oil export costs, based on current palm oil prices. Some participants also believe the new restriction is likely to tighten supply and act as a Pome oil fraud prevention measure.
The announcement comes just as delegations from Ireland, Belgium, Germany and the Netherlands filed an information note for the European Commission's transport, telecommunications and energy council meeting on 15 October. They asked the commission to look into concerns about Pome oil and other palm oil derivatives used as waste-based biofuel feedstocks in Europe, implying that the EU consumed more Pome oil-based biofuels than could theoretically have been produced.
But the Indonesian Pome oil market had been expecting a restriction on Pome exports tied to the MGR programme as far back as in August.
The restriction is considered a second blow to the Indonesian Pome oil export market this year as the ministry previously raised export levies on palm waste and residue biofuel feedstocks, moving the export levy on Pome oil from $5/t to $63/t in September, which weighed heavily on Pome oil market liquidity.
Participants have also observed that Indonesian Pome oil should be valued higher than Malaysian cargoes as the higher export levy, and now export permit requirement, has driven up the cost for supplying Pome oil out of Indonesia.
The fob Indonesia/ Malaysia Pome oil assessment stood at a midpoint of $810/t on 15 October, the highest in five months.
