The world's two largest crude palm oil (CPO) producers and exporters - Indonesia and Malaysia - signed an agreement on Saturday (21/11) for the establishment of an intergovernmental palm oil council, called the Council of Palm Oil Producer Countries (CPOPC), that aims to control the global CPO supply, stabilize prices, promote sustainable practices in the palm oil industry, and enhance the welfare of oil palm smallholders. Both countries will invest USD $5 million each for the set up of this new council. Its headquarters will be located in Jakarta.
Besides Indonesia and Malaysia (that together account for roughly 85 percent of global CPO production), membership of the CPOCP is open to other palm oil producers such as Thailand, Papua New Guinea, the Philippines, Uganda, Ghana, Liberia, Nigeria, Brazil, and Colombia. The signing ceremony, which took place in Kuala Lumpur on Saturday (21/11), was witnessed by Indonesian President Joko Widodo and Malaysian Prime Minister Najib Razak.
The CPOPC is envisaged to play a role similar to that of the OPEC in the global oil sector. An important task of the new institution is to coordinate CPO stock management in order to safeguard price stability.
Malaysia's and Indonesia's palm oil reserves are high at 2.83 million tons and 3.03 million tons, respectively, in October, making it difficult for global palm oil prices to rise, particularly as global demand is still sluggish and the Malaysian ringgit strengthened (making palm oil shipments less attractive to for foreign buyers).
However, benchmark palm oil prices are expected to be supported by curbed output due to the El Nino weather phenomenon as well as the forest-fires inflicted haze. Higher palm oil demand is also expected to come as the result of Indonesia's B15 biodiesel program - which refers to the government's program to blend 85 percent of diesel with a mandatory 15 percent of fatty acid methyl ester (derived from palm oil) - as it boosts palm oil demand from the biofuel industry. Next year, the government will introduce the B20 biodiesel program (increasing the percentage of mandatory fatty acid methyl ester to 20 percent). This may push palm oil prices to USD $700 per ton in mid-2016 from around USD $530 per ton currently. To fund this program, the Indonesian government started to collect palm oil export levies in July. Next year it expects to raise USD $700 million from these CPO export levies.
Although the country's mandatory biodiesel program is has not been running smoothly, the Indonesia Estate Crop Fund Agency says total biodiesel consumption in Indonesia is estimated to reach 1.6 million kiloliters in 2015 and surge to 4 million in 2016.
Indonesian Palm Oil Production and Export:
(million metric tons)
(million metric tons)
(in USD billion)
¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture