The trade war between China and the United States, which has seen the two countries trade higher tariffs on soybean oil, has begun to impact the international market in vegetable oils, the Indonesian Palm Oil Producers Association (GAPKI) said on Wednesday (18/7).

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In a press release, the escalating tension has led to a glut in soybean stocks in the United State and in China and with the weak global demand for the commodity, prices have weakened.

“At the same time stocks of other vegetable oils such as rapeseed, sunflower and palm oil are quite abundant in their respective producing countries. The result it the prices of vegetable oils are weakening because the law of economy came into action when supplies abound and demands are weak, prices would then become cheap,” GAPKI said in the release.

Gapki said that Indonesia’s total exports of palm oil, including biodiesel and oleochemicals, weakened by three percent to 2.33 million tons in May 2018. The figure for Crude Palm Oil (CPO) and its derivatives, excluding biodiesel and oleochemicals, weakened by four percents to 2.14 million tons in May.

“The decline in exports was influenced by the abundant stocks of other vegetable oils in the global market,” the GAPKI statement said.

GAPKI said that amid the uncertainty in the market, and the heightening trade war tension between China and the United States, the government should accord special attention to the palm oil industry so that palm oil prices do no continue to deteriorate.

“As much as possible, the government needs to come out with policies to increase domestic consumption by encouraging the use of more biodiesel, it is now time for the mandatory biodiesel use to be applicable to non-public Service Obligation (institutions) go boos domestic consumption,” GAPKI said.

GAPKI added that another move that could be taken was to probe market expansion in Africa and to that effect, the government could, for example, cut down tariffs for exports to that continent.

The lower palm oil prices, it said, appeared to prompt traders in Pakistan to beef up their stock of palm oil from Indonesia, resulting in a 29 percent rise in Indonesian palm oil exports yo that country in May.

A similar rise, of 29.5 percent was also posted in exports to Africa in May, reaching 228,750 tons.

China and the United States also increased their absorption of palm oil from Indonesia, with their imports of palm oil rising respectively by six percent and 18 percent

Cheaper palm oil prices, however, failed to spark a higher demand in India because of the high import duties slapped on palm oil and its derivatives.

India imported 31 percent less palm oil in May, at 240,160 tons. Weak palm oil imports by India has significantly contributed to the high level of palm oil stocks in Indonesia and Malaysia, GAPKI added.

In Europe, abundant production of sunflower and rapeseed oils led to the European Union importing seven percent less palm oil from Indonesia, at just 359,310 tons in May.

Indonesia produced 4.24 million tons of palm oil in May 2018 or 14 percent up from the previous month. Stocks in the same month stood at 4.76 million tons compared to 3.98 million tons in April.

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