Indonesia's palm oil prices extended gains on Wednesday, boosted by a weakening rupiah against the dollar, while volatile prices kept buyers away from the export market.
The state marketing centre, which sells crude palm oil from state plantations in Jakarta, failed to sell 1,000 tonnes of crude palm oil. But in North Sumatra's Medan crude palm oil traded at 7,695 rupiah ($0.868) a kg, up 1.7 percent from 7,562 rupiah on Tuesday. "The rupiah is weakening a lot today. That supports the prices although Malaysia is down slightly," said a trader in Medan, the key port for palm oil exports.
"But crude palm oil supplies are also a bit tight because production is still up and down." The Indonesian rupiah hit one-month lows on Wednesday as investors took profit after recent rises.
The rupiah steadied near 8,860 per dollar down almost 0.8 percent from late Asia trade on Tuesday as offshore investors pulled funds from domestic bond and stock markets. In Jakarta, cooking oil was offered between 8,300-8,360 rupiah, up more than 3 percent from 8,050-8,100 on Tuesday. The Indonesian government has been seeking ways to ease local cooking oil prices including considering a higher palm oil export tax but no decision has been made.
While awaiting a decision, the government has said it is extending the current voluntary programme to stabilise domestic cooking oil prices, which has been in place since May. Under the programme, producers should supply crude palm oil to cooking oil processors at 5,700 rupiah a kilo so that non-branded cooking oil can be sold at 6,500-6,800 rupiah on the retail market.
The Indonesian Palm Oil Board said raising the palm oil export tax was not necessary since the current programme would be able to hold down local cooking oil prices. "The programme is already on track. There is no need to raise the export tax because cooking oil prices will go down once production picks up and supply distribution is running normally," said Frankly O.
Widjaja, chairman of the newly formed Indonesian Palm Oil Board. On the Indonesian export market, sellers offered crude palm oil for June shipment at $840 a tonne, up 1.2 percent from $830 a tonne on Tuesday. But buyers did not bid for the shipment. July shipments were offered at $825, up from $820 on Tuesday, without any bids from buyers. "The market has been very volatile so buyers retreat to the sidelines, watching for price directions," said the Medan trader.