Joko Supriyono, Secretary General of the Indonesian Palm Oil Producers Association (Gapki), said Indonesia's higher palm oil exports (in terms of volume) is in line with a 3 percent growth (y/y) in production of this edible vegetable oil. Indonesia produced a total of 32.5 million tons of crude palm oil in 2015, up by one million tons from the preceding year. Despite sluggish global economic growth, Indonesia's main export markets continued to show rising demand for Indonesian palm oil.

In fact, CPO exports to China rose by a staggering 64 percent (y/y) to 3.99 million tons in 2015 according to data from Gapki. This is remarkable as demand in China is under pressure due to the slowing pace of economic growth (in 2015 China's GDP growth rose by 6.9 percent, a 25-year low) and secondly because China is increasingly preferring soybean (the great competitor of palm oil), particularly for its livestock industry. The US Department of Agriculture (USDA) estimates that China will use 7.8 percent more soybean oil in 2015/16 and 0.4 percent more palm oil, hence putting more pressure on palm oil prices.

Indonesian Crude Palm Oil Exports in 2015 per Export Market:

Export Market       2015
(in million tons)
India        5.80       +15%
European Union        4.23       +2.6%
China        3.99       +64%
Pakistan        2.19       +32%
United States        0.76       +59%

Source: Gapki

Supriyono said palm oil prices are negatively influenced by the world's low oil prices (trading below USD $30 per barrel) and due to sluggish economic growth in China and the Eurozone. The low oil prices are reason why Gapki requests the Indonesian government to reevaluate its biodiesel program. Indonesia's biodiesel program is a government-aided program. Palm oil export levies - collected from domestic companies - are used to finance the program (Indonesia's reference palm oil price is still below the USD $750 per ton threshold, implying a zero percent export tariff remains in place). Funds generated through the collection of these palm oil export levies go into the Palm Oil Fund. However, this Palm Oil Fund not only provided financial assistance for the biodiesel program. It also supports the replanting, research and the development of human resources in the nation’s palm oil industry. However, if oil prices continue to slide, then most of the Palm Oil Fund will be used for the production of biodiesel, leaving little behind for replanting, research and the development of human resources.

Read Column: Low Crude Oil Prices Threaten Indonesia's Biodiesel Program

Supriyono expects the CPO price to remain stagnant in 2016, perhaps even falling slightly from current levels (around USD $550 per ton). With no expectation of rising palm oil prices anytime soon, Supriyono advises Indonesian palm oil growers to become more efficient in order to optimize income.

In 2016 Indonesia's palm oil production may decline a little given that a strong El Nino weather phenomenon caused a prolonged dry season in 2015. As such, palm oil harvests may be weaker this year. For the moment, Gapki puts its CPO production forecast at 30-33 million tons in 2016.

Indonesian Palm Oil Production and Export Statistics:

   2008  2009  2010  2011  2012  2013  2014  2015   2016
(million tons)
  19.2   19.4   21.8   23.5  26.5   30.0   31.5   32.5   32.0¹
(million tons)
  15.1   17.1   17.1   17.6  18.2   22.4   21.7   26.4   27.0¹
(in USD billion)
  15.6   10.0   16.4   20.2  21.6   20.6   21.1   18.6   18.6¹

¹ indicates forecast
Sources: Indonesian Palm Oil Producers Association (Gapki) & Indonesian Ministry of Agriculture

What are the five factors that influence crude palm oil prices?
(1) supply & demand
(2) prices of competing vegetable oils
(3) weather
(4) import policies of importing countries
(5) changes in taxation and import duties