Joko Supriyono, Secretary General of the Indonesian Palm Oil Producers Association (Gapki), said El Nino will cause Indonesia's palm oil output to decline from 32.5 million tons in 2015 to 30 million tons in 2016. Meanwhile, Indonesia's palm oil export is expected to decline 15 percent (year-on-year) to 22 million tons in 2016.

He added that despite the rising crude oil price (which gained some momentum after the OPEC countries decided to limit oil production in an attempt to boost crude prices), there remain several major challenges for Indonesia's palm oil industry, namely (1) negative campaigning against the palm oil industry, (2) the palm oil industry being regarded as the main source of the severe forest fires and toxic haze that occurred in 2015, and (3) uncertainty about Indonesia's moratorium on new palm oil concessions.

Therefore, the Indonesian government and the palm oil industry in Indonesia are increasingly focused on developing sustainable practices as well as rejuvenation of existing plantations rather than adding new plantations, Supriyono said.

Siegfried Falk, co-editor at Global Oil, said the CPO price may surpass the USD $800 per ton level in 2017 due to low production rates this year. There will, however, not be much room for further growth as soy bean harvest in the USA, Brazil and Argentina (in the second quarter of 2017) will make palm oil less attractive.

Read more: Overview and analysis of Indonesia's Palm Oil Industry

Fadhil Hasan, Executive Director at Gapki, is less optimistic but still sees the CPO price rising slightly in 2017 supported by the higher crude oil price and rising domestic CPO consumption due to Indonesia's B20 biodiesel program. Dorab Mistry, Director at Godrej International, agrees and expects the biodiesel program to support the CPO price in 2017. He added that global CPO prices have somewhat recovered after Indonesia decided - in August 2015 - to introduce a levy that requires exporters to pay USD $50 per ton for CPO shipments and USD $30 for shipments of processed palm oil products.

Indonesia is the world's largest producer and exporter of crude palm oil. Most of its CPO exports are shipped to India, the European Union, China, Pakistan, the Middle East, and Africa.

Indonesia's Reference Crude Palm Oil Price in 2016:

Month      2015
     Price
(in USD/ton)
     2016
     Price
(in USD/ton)
January      669.4      557.2
February      678.5      628.9
March      662.0      618.8
April      654.6      713.1
May      653.2      703.1
June      665.0      689.5
July      630.6      658.0
August      593.3      734.8
September      526.9      768.6
October      578.2      722.0
November      552.2    
December      560.2

Source: Gapki

Indonesian Palm Oil Production and Export Statistics:

  2008 2009 2010 2011 2012 2013 2014 2015  2016
Production
(million tons)
 19.2  19.4  21.8  23.5 26.5  30.0  31.5  32.5  30.0¹
Export
(million tons)
 15.1  17.1  17.1  17.6 18.2  22.4  21.7  26.4  22.5¹
Export
(in USD billion)
 15.6  10.0  16.4  20.2 21.6  20.6  21.1  18.6  16.0¹

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

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