KUALA LUMPUR: Sime Darby Plantation Bhd (SDP) do not foresee a significant impact on the new Indonesian regulation requiring local palm oil producers to sell 20 per cent of their production to domestic refiners at fixed prices starting from February 23, 2022.
Sime Darby Oils (SDO) managing director Mohd Haris Mohd Arshad said SDP fully supported the Indonesian government's decision to require the company to sell a portion of their crude palm oil (CPO) products at a steep discount.
"The new regulation will pose an impact to the company, but it is more on opportunity losses.
"However, as a responsible corporate player in Indonesia, we fully support the government's initiative to curb the rising cooking oil prices," he said at SDP's financial year ended December 31, 2021 (FY21) media briefing today.
According to Haris, with this new policy, Indonesia, the world's biggest palm oil producer, hopes to curb the rising cooking oil prices that have jumped 40 per cent year-on-year to become more stable and affordable for the people.
"Let us put this into perspective, unlike Malaysia, where we consume about a million tons of palm oil for domestic uses, and we produce 19 million tonnes.
"Indonesia consumes about 10 million tonnes, so that is how much they consume for domestic use.
"Thus, when you have prizes going from RM3,000 to RM6,000 per tonnes, you can imagine the impact that they have on Indonesian," he said.
Under Indonesia's domestic market obligation (DMO), the authorities have imposed a mandate that requires 20 per cent of the palm oil exports to be sold domestically at a price ceiling of 9,300 rupiahs (RM2.70) per kg for CPO and 10,300 rupiahs (RM3) per kg for palm olein.
The capped prices will see palm oil products be sold domestically at steep discounts of RM2,715 per tonne for CPO and RM3,024 per tonne for palm olein.
Haris said the company would continue to support Indonesia's government decision to ensure enough cooking in the country.
"Therefore, the Indonesian government is asking industry players to help ensure that oil supply is stable in Indonesia.
"We have been participating in the move ever since the call to help stabilize supply was made, but I would say the impact to our bottom line is more of an opportunity loss rather than a big loss to the company," he said.
Meanwhile, commenting on the CPO outlook this year, Haris said SDP expects the CPO price to hover at RM5,000-RM5,500 per tonne in the first half of this year.
He said supply problems due to labour shortages on farms, unpredictable weather conditions, geopolitical conflicts and high crude oil prices would risk CPO prices continuing to rise.
"We expect the price to hover around RM5,000-RM5,500 per tonne in the first half this year.
"The price is expected to decline with the recovery of production and the return of labour, but it will not return to previous levels (around RM2,500-RM3,000 per tonne)," he added.