Demand for Indonesian crude palm oil (CPO) - both global and domestic demand - surged, giving rise to impressive corporate earnings reports of Indonesian palm oil producers in the first quarter of 2014. Combined, net profit of plantation companies that are listed on the Indonesia Stock Exchange, rose 116 percent. Indonesia's plantation sector is dominated by production of crude palm oil products and derivatives. Because of increased global demand, the value of Indonesian CPO exports is expected to rise to USD $22-24 billion.
For Indonesia it is important that exports of CPO and derivatives will rise because it is one of the country's most important (non-oil & gas) export products. Indonesia is currently the largest producer and exporter of palm oil worldwide, followed by Malaysia. Together, these two countries account for around 85 to 90 percent of total global palm oil production. An improving palm oil sector will also reduce pressures on Indonesia's trade balance and current account. The large trade deficit is partly the reason why Indonesia had been categorized as being one of the 'fragile five', a term coined by Morgan Stanley and which describes five countries whose economies rely mostly on capital inflows to sustain currency and economic stability. With global funds becoming more expensive amid the US Federal Reserve tapering policy, these five countries (Indonesia, South Africa, Turkey, India and Brazil) will thus face more difficulty to attract global funds.
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
Executive Director of the Indonesian Palm Oil Association (Gapki) Fadhil Hasan confirmed that global demand for Indonesian CPO and derivatives has increased, particularly from India, Pakistan, Africa and the European Union. Meanwhile, domestic demand has risen due to the government's recently-introduced biodiesel program. Through this program the government raised the mandatory amount of palm oil (fatty acid methyl ester) blended in biodiesel from 7.5 percent to 10 percent. For power plants that use biodiesel the amount has been increased to 20 percent. This year, Indonesia is expected to use 3.3 million tons of CPO for its biodiesel program. Regarding the future, Hasan paints a promising picture of the Indonesian palm oil sector and expects that it will continue - and probably expand - its important role within the Indonesian economy. As global demand for energy and food rises steadily and continuously, CPO will expand its significance.
Analysts argue that the international CPO price may surpass the level of USD $1,100 per ton in 2014. The CPO price in Rotterdam, a benchmark CPO price in global markets, plunged to USD $745 per ton in July 2013 but has recovered ever since although is still far away from its record high of USD $1,407.5 per ton in March 2008.
The Indonesian government intends to expand the plantation area for CPO production in order to reach the CPO production target of 52 million tons by 2020.
Listed Indonesian CPO Companies' Financial Results Q1-2014 (in billion rupiah):
|Revenue|| Net Profit
||% Growth|| Q1-2014
|Astra Agro Lestari||3,725||2,723||36.7||784.6||356.3||120.2|
|Austindo Nusantara Jaya||398.2||409.2||2.7||44.6||44.2||0.9|
|Dharma Satya Nusantara||1,238||799.2||54.9||149||21.6||589.8|
|Jaya Agra Wattie||214.7||164.9||30.2||30.3||27.6||9.7|
|PP London Sumatra Indo.||1,279||912||40.2||223.6||100.5||122.4|
|Salim Ivomas Pratama||3,171||3,096||2.4||192||99.8||92.3|
|Sawit Sumbermas Sarana||524.2||435.3||20.4||196.1||148.8||31.7|
|Tunas Baru Lampung||1,158||873||32.6||131.9||77.8||69.5|
|Bakrie Sumatera Plant.||659.2||481.3||36.9||296.8||-62.9||571.8|
Source: Investor Daily