Policing on Indonesian Palm Oil Instils Price Rise Fears in China Stearic Acid Market

Indonesia’s recent move to curb spot trading of palm oil feedstocks has given room to intense price rise speculations among market participants involved in stearic acid production and trading in China. Stearic acid prices had last week witnessed an abrupt surge of 8% from last month on account of increased downstream consumption upon optimistic demand growth in the personal care sector amid falling imports due to port suspensions in the wake of tightening Covid restrictions and Chinese New Year around the corner. Now with the implementation of the new Indonesian regime, an inevitable enhancement in the stearic acid prices is expected in China, which is a major importer of stearic acid and its feedstock palm oil from Indonesia.

The palm oil market has remained under the spotlight throughout the last year owing to its low output and record-breaking price trends which has kept the trading and downstream dynamics on the edge. Once again, the global palm oil market is seeing itself under turbulence as Indonesia, the biggest producer and exporter of palm oil, in its efforts to fulfill domestic cooking needs at economic rates, has set strict export guidelines. As per the new conditions, the exporters will receive a trading license solely after proving their domestic accountability by handing in six months’ worth of domestic sales contract details and export strategy to the country’s trade ministry. This move is just an initiation of what is expected to be a stricter mandate under which the government may set a limit to the volume of palm oil being exported, the final decision on which is currently pending.

A direct consequence of the above measure is expected to be seen in China, where manufacturers will have a job procuring an ample amount of feedstocks to conduct productions at justified capacity utilization and meet downstream demand. The stearic acid imports from Indonesia will also get affected by the government’s focus on taming cooking oil prices and promoting palm oil-based biodiesel consumption in the country, thus causing the local manufacturers to scrape through the leftover palm oil inventories for the production of stearic acid.

According to ChemAnalyst, the Indonesian palm oil industry plays a pivotal role in contributing a significant share to the country’s economy. The government’s new action plan is to keep producers in check to refrain them from trading palm oil to the overseas market due to high-profit prospects when the domestic needs go unmet. Hence, importers like China must brace themselves for the downstream stearic acid supply tightness and price shocks which may haunt the market unless there is an improvement in palm oil productions this year.