Ingredient Suppliers Expect Higher Working Capital and Longer Lead Times Under Palm Oil Export Ban
Indonesia has made headlines for its palm oil export ban introduced to protect domestic demand for cooking oil – a knock-on effect of several factors including soybeans, oil shortages canola in South America and France, and more recently, the disrupted supply of sunflower oil due to the Russian-Ukrainian war.
To keep cooking oil prices low, the Indonesian government recently banned the export of more palm oil products. The policy has been extended to include Crude Palm Oil (CPO), Refined Palm Oil (RPO), Refined, Bleached and Deodorized (RBD) Palm Olein, Palm Oil Mill Effluents (POME) and used cooking oil since April 28.
Although the policy has largely affected the general food industry and the cooking oil industry, the nutraceutical industry is also not spared from the ban, as ingredients such as tocotrienols, carotenes, medium-chain triglycerides (MCTs) and glycerin are derived from different parts of the oil palm fruit.
NutraIngredients-Asia spoke to a number of functional ingredient suppliers, namely Singapore-based Musim Mas and Malaysia-based Excelvite and PhytoGaia to learn more.
One point that was raised was how the ban increased demand for palm oil from Malaysia, with prices expected to rise.
“The ban on exports from Indonesia has added to the tight supply in Malaysia, with overseas buyers demanding to switch their purchases from Indonesia to Malaysia.
“This has impacted nearby physical materials available for delivery, especially buyers or users at scale of deals who need to source feed oils for their manufacturing demand. The price has increased by more than 10% in a week and physical delivery of oils nearby is difficult to obtain,” Derek Ng, deputy managing director and chief operating officer at Excelvite, said.
According to data from the Malaysian Palm Oil Council (MPOC), the CPO settlement price fell from RM$6,400 (US$1,470) to RM$6,987 (US$1,604) on April 27 – the day Indonesia announced the extension of its export ban. It then rose to RM$7,104 (US$1,621) on April 29.
Prior to the announcement, the CPO settlement price fluctuated between RM$6,229 (US$1,430) and RM$6,468 (US$1,485) between April 14 and April 25. It went down to RM$6,400 (US$1,460) on May 6.
Excelvite uses palm oil to produce branded ingredients such as EVNOL palm tocotrienol complex, EVTene palm carotene complex, as well as EVOlein – a specialty red palm olein fortified with mixed carotene complex and sold as a functional ingredient.
Compared to the edible oil industry, Ng said it was not difficult for the company to source supplies despite the shortage in the market, as the volume the company needed was relatively less.
“As our volume is not huge compared to the typical edible oil refinery, it is therefore not difficult for ExcelVite to source supplies despite the shortage of equipment in the market.
“However, high prices have added enormous pressure on increasing working capital,” said Ng.
The company said it will monitor the market closely and keep customers informed of available options.
Modification of payment terms
PhytoGaia, on the other hand, pointed out that there might be a change in payment terms and a longer delay due to the ban.
“If the CPO price is high, palm oil suppliers will ask for prepayment to ensure there is no default. It is also expected that the delivery time will be longer due to shortage of supply.
“You will see an increase in the prices of ingredients, such as palm phytonutrients, MCT, glycerin, as the price of the raw material has increased, and it will remain bullish until and unless Indonesia lifts the price. ‘prohibition”, said Bryan See, vice president, business development and technical support at PhytoGaia, who added that the company had received inquiries from customers about how the ban would affect supply.
The Company sells functional ingredients extracted from CPO, including TocoGaia Full Spectrum Palm Tocotrienols/Tocopherol Complex, CaroGaia Mixed Carotene, and Natural Plant Squalene with ST Gaia Tocotrienols/Tocopherol Complex.
Further down the supply chain, See explained that manufacturers may be hesitant to run production at the current rate.
“When you produce the products at a higher cost, you need to make sure the numbers are right to sell the products at a higher price so you don’t suffer a loss.”
He added that the company expects the selling prices of its functional ingredients to rise, and not just because of the export ban.
“We are in the final stages of reviewing the cost of production. The review is not only due to the increase in CPO prices, but also the minimum wage policy that Malaysia is implementing [on May 1]as well as energy, packaging and logistics costs that have increased in recent months.”
Unaffected
At the same time, some companies said the export ban had not yet affected their dietary supplement business, despite their palm oil coming from Indonesia.
Musim Mas is an example of this, as he stated that his tocotrienols and carotenes come from palm fatty acid distillate (PFAD) and MCT oil from palm kernel oil, and are not covered. by the ban, according to Carolyn Lim, the firm’s senior director, corporate communications.
Watch the video to learn more.
