The Indonesian government has provided greater detail on its Domestic Market Obligation (DMO) and Domestic Price Obligation (DPO) schemes – three days after announcing that the policy would be reinstated upon the withdrawal of the palm oil export ban.
During the transitional period, the DMO scheme will require that the ratio of palm oil supplies reserved for local consumption vs. exports will be 1:3, according to an official release published by Indonesia’s trade ministry on Monday.
In addition, only companies that have not applied for subsidies on palm oil delivered to local markets during the ban will be allowed to apply for export permits.
To qualify as an exporter, the company must have proof that they have met the terms of the DMO before they can export.
The DMO and the regulations for its application will also change month to month.
The Indonesian government said earlier it is looking to set a DMO amount of 10 million tonnes of cooking oil, with 8 million tonnes set for domestic consumption and reserves of 2 million tonnes.
“This is likely to firm buying sentiment, especially for June-July cargoes,” a regional broker said.
Earlier this year, in a bid to ensure local cooking oil supplies, the government set a 30% DMO through which palm oil exporters were required to retain a portion of their export volumes for supply into the domestic market before any export permits could be approved.
This was subsequently replaced with an increase in the export duty for palm oil on March 17.
Crude palm oil futures on the Bursa Malaysia Derivatives Exchange traded higher on Monday, with the benchmark August-delivery contract closing 2.6% higher at MYR 6,268 ringgit per tonne ($1,428 per tonne) at the end of the afternoon trading session as the market responded to Indonesia’s announcement.
