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How long will Indonesia’s ban on crude palm oil exports last? – Moneycontrol

For policymakers in India, the surprise move by Indonesia to halt the export of crude palm oil from April 28 has dealt a body blow at a time when the price of everything—from wheat to crude oil—has been surging.

With India’s retail inflation, measured by the Consumer Price Index, sitting at a 17-month high of 6.95 percent in March and recent downgrades to India’s domestic growth rates in light of the Russia-Ukraine war, the pain threshold for consumers may be close to breaking point.

Indonesia’s decision to halt exports for the foreseeable future is driven by local political necessities as surging local inflation comes at a time when President Joko Widodo’s rivals in the past two general elections are winning the popularity battle.

For India, Indonesia is the source of 50 percent of its crude palm oil exports. The ban is likely to push crude palm oil prices through the roof, which were already sitting near multi-year highs after Russia’s invasion of Ukraine forced consuming nations to shift to palm oil to substitute for sunflower oil loss.

Also read: Indonesian palm oil export ban set to raise Indian inflation

Analysts believe that higher crude palm oil prices will further force domestic fast-moving consumer goods companies to raise prices at a time when their previous price hikes have started to dent volumes.

High inflation in basic consumer staples have seen consumer downtrade on everyday items, given that income levels are yet to recover back to pre-pandemic level, which itself was at a low given the harsh economic slowdown following IL&FS’ blow up.

The million-dollar question then is when will Indonesia lift the ban on palm oil exports?

“In our view, most likely this will be a temporary measure of two-three weeks as Indonesia will lose out on exports,” said Abneesh Roy of Edelweiss Securities. Citing the example of Argentina, which briefly banned exports of soya oil in mid-March before raising export tariffs on such products, Roy expects a similar move by Indonesia.

Also read: Nifty, Sensex slump for second session, 6 factors driving the sell-off

Roy’s assessment is based on discussion with several experts in the palm oil industry.

That said, the impact of the ban will still show up in product prices going ahead, with Edelweiss Securities expecting companies like Britannia Industries to now raise prices by more than 7 percent in 2022-23.

Analysts expect other FMCG companies to raise product prices sharply to account for higher palm oil prices since they no longer have the ability to absorb higher costs after seeing their profitability margins get compresses throughout 2021.

While FMCG stocks came under pressure in the aftermath of the ban, with the Nifty FMCG index down over 2 percent, a quick reversal to status quo could provide a relief rally on such stocks, Edelweiss Securities said.

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