Indonesia is moving to lighten its stocks at cheaper prices
In the intricate web of global commodity markets, a policy reversal in Jakarta is quietly reshaping fortunes across the South China Sea. Indonesia, having banned palm oil exports in May to shield its own consumers, now waives export levies to drain its swollen warehouses — and in doing so, undercuts its neighbor Malaysia at precisely the worst moment. As Malaysia enters its peak harvest season with labor already stretched thin, the prospect of stockpiles reaching a three-and-a-half-year high reminds us that one nation's relief can become another's burden, and that markets, like water, always find the lowest price.
- Indonesia's levy waiver through October 31 allows its producers to sell palm oil below prices Malaysia can competitively match, directly eroding Malaysian export volumes.
- Malaysian stockpiles, already at a 33-month high in August, are now on course to swell to 2.5 million tonnes by December — the heaviest inventory burden since April 2019.
- Peak harvest season is flooding fresh oil into a system already struggling to move existing supply, turning a market slowdown into a potential storage crisis.
- Chronic labor shortages on Malaysian plantations compound the pressure, leaving the industry unable to fully process or pivot even as output climbs toward 18.5 million tonnes.
- Malaysian officials suspect Indonesia's actual stockpiles far exceed reported figures, raising the likelihood that Jakarta will extend its subsidy policy well into 2023, prolonging the competitive squeeze.
Indonesia's decision to waive palm oil export levies through October 31 has set off a chain reaction that Malaysia's industry is bracing to absorb. The move traces back to May, when Jakarta imposed an outright export ban to protect domestic consumers from inflation — a measure that worked as intended but left Indonesian warehouses packed with unsold oil. Facing mounting pressure from producers and farmers, officials reversed course, opting for a levy waiver that lets shipments resume at zero tax. The goal was simple: move the inventory, whatever the cost to regional competitors.
For Malaysia, the timing could hardly be worse. Ahmad Parveez Ghulam Kadir, director general of Malaysia's Palm Oil Board, warned in mid-September that his country should expect a sharp drop in exports over the following two to three months as cheaper Indonesian oil captured global buyers. Malaysian oil, unable to compete on price, would back up in storage. By December, Parveez projected, national stocks could reach 2.5 million tonnes — a level not seen since April 2019.
The problem is compounded by seasonality. Malaysia is entering its peak production period, meaning fresh oil continues flowing into a system already struggling to push supply outward. August stocks had already climbed to their highest point in nearly three years. Meanwhile, a chronic labor shortage on Malaysian plantations limits the industry's ability to adapt, even as the country tracks toward 18.5 million tonnes of total output for 2022.
Parveez suspects Indonesia's true stockpiles are considerably larger than official figures indicate, and that Jakarta will likely extend its waiver beyond October 31 if inventories remain elevated — keeping competitive pressure on Malaysian exports and prices well into the final quarter of the year and potentially beyond.
Indonesia has found a way to move its massive palm oil surplus, and Malaysia is about to pay the price. By waiving export levies through the end of October, Indonesian producers can now undercut their Malaysian competitors on the global market, flooding the world with cheaper oil and leaving Malaysian stockpiles to swell. It's a straightforward play: clear inventory fast, even if it means accepting lower margins, and let the neighboring country absorb the market slack.
The situation traces back to May, when Indonesia imposed an outright export ban on palm oil—a dramatic move meant to stabilize domestic prices and protect local consumers from inflation. The ban worked as a circuit breaker, but it also created a problem: oil piled up in Indonesian warehouses with nowhere to go. By September, facing mounting pressure from producers and farmers struggling with unsold inventory, Jakarta reversed course. Instead of a ban, officials introduced an export levy waiver, allowing shipments to resume but at zero tax. The message was clear: move this oil, whatever it takes.
Malaysia's government saw the trap immediately. Ahmad Parveez Ghulam Kadir, the director general of Malaysia's Palm Oil Board, told Reuters in mid-September that his country should expect a sharp drop in exports over the next two to three months as Indonesian palm oil flooded global markets at prices Malaysia couldn't match. The consequence would be predictable: Malaysian oil would back up in storage tanks across the country.
By the end of 2022, Parveez predicted, Malaysia's palm oil stocks could reach 2.5 million tonnes—the highest level since April 2019. The timing made the problem worse. Malaysia was entering its peak production season, meaning fresh oil was flowing into the system even as exports slowed. In August alone, Malaysian stocks had already climbed to their highest point in 33 months. Adding another quarter of constrained exports on top of peak-season output created a storage crisis in waiting.
Production numbers offered little comfort. Malaysia was on track to produce 18.5 million tonnes of palm oil in 2022, slightly above the previous year's 18.1 million tonnes. But even hitting that target was uncertain. Planters across Malaysia were struggling to find enough workers for harvesting—a chronic labor shortage that had plagued the industry for years and showed no sign of easing. More oil flowing into a system already straining to process it meant the bottleneck would only tighten.
Indonesia's calculation was straightforward, if brutal. The country's actual stockpiles were likely far larger than official numbers suggested, according to Malaysian officials. By offering palm oil at prices below what Malaysia could afford to match, Indonesian producers could move volume and help small farmers who had been squeezed by the export ban. The subsidy was temporary—through October 31—but Parveez suspected it wouldn't end there. If Indonesian stocks remained elevated, Jakarta would probably extend the waiver into late 2022 and beyond, keeping the pressure on Malaysian exports and prices throughout the final quarter of the year.
Citações Notáveis
The way Indonesia is now releasing stocks, we anticipate for the next two to three months Malaysia's exports would go down— Ahmad Parveez Ghulam Kadir, director general of Malaysian Palm Oil Board
I won't be surprised if they extend the policy, although it depends on the stocks. They want to bring down the stocks to a manageable level— Ahmad Parveez Ghulam Kadir
A Conversa do Hearth Outra perspectiva sobre a história
Why does Indonesia's decision to waive export levies hit Malaysia so hard? They're different countries with different interests.
Because they're selling the same product to the same buyers. When Indonesia drops its price, buyers naturally shift. Malaysia can't compete on price without taking losses, so they hold inventory instead.
But Indonesia had an export ban just months earlier. What changed?
The ban created a crisis—oil backed up, farmers couldn't sell, prices spiked at home. The government reversed it, but they still needed to move volume fast. The levy waiver lets them do that without formally admitting the ban failed.
And Malaysia just has to absorb the hit?
For now, yes. They're hoping it's temporary—that Indonesia clears its excess by November and the market rebalances. But if Indonesian stocks stay high, Jakarta extends the waiver, and Malaysia's problem becomes structural.
What about the labor shortage you mentioned? How does that factor in?
It's the real constraint. Malaysia could theoretically produce more, but they can't harvest it fast enough. So peak season becomes a liability—more oil coming in, fewer hands to process it, and now fewer buyers because Indonesia is undercutting them. It's a squeeze from multiple angles at once.