"Cooking oil supply is too high, so that the market cannot absorb it any more," Derom Bangun, chairman of the Association of Indonesian Palm Oil Producers (Gapki), told Reuters in an interview.

"Monthly cooking oil demand stands at 160,000 tonnes, which is equivalent to between 200,000-220,000 tonnes of CPO. The 400,000 tonnes is more than enough for one month's demand," Bangun said from Medan, the key commodities trading city in North Sumatra.

He said 200,000 tonnes of the CPO was produced by private companies and the rest by state-run plantation firms (PTPN), adding that the oil was kept in their storage tanks.

The government is trying to stabilise prices of cooking oil, one of the basic commodities in Indonesia, by imposing hefty export taxes on crude palm oil and its by-products. Olein, the refined formof CPO, is used as cooking oil.

The government has also ordered state-run plantation companies to sell their olein only to the state commodities regulator Bulog and government-assigned cooperatives grouped in the Indonesian Distribution Cooperatives forum.

"The government has done a lot to supply the domestic market with cooking oil. I think stocks from the PTPN (alone) are more than enough," said Bangun.

He said the output of state-run plantation companies totalled 35 per cent of the country's total production, which this year was estimated at 4.8 million tonnes of crude palm oil.

"In addition, the high export taxes have discouraged people from exporting their goods," he said.

Export tax on CPO stands at 60 per cent, at 55 per cent for RBD palm oil and RBD olein and at 50 per cent for crude palm kernel.

"There is no reason to maintain the 60 per cent tax because it was made when cooking oil was quoted at 6,000-7,000 rupiah/kg. The cooperatives prices now hover at 2,900. I think the current pricesare normal enough," said Bangun.

Private traders said olein was quoted at 3,200 rupiah/kg in Jakarta on Tuesday.

Trade and industry minister Rahardi Ramelan reiterated on Tuesday that export taxes would stay in place because demand would pick up during the Moslem Eid al-Fitr celebration in January.

The celebration marks the end of the fasting month.

Ramelan said the government would not abruptly change the policy because it would give the wrong signal to the market.

Trade sources said exports of CPO and its by-products could have reached 400,000 tonnes in October because many players were engaged in export commitments in September, when they thought the government would lower the taxes.

Some traders had anticipated the taxes would be reduced if olein prices reached 3,100 rupiah/kg.