Fadhil Hasan, Executive Director of Gapki, does see an improvement in terms of Indonesia's crude palm oil (CPO) production in 2017 as weather conditions have turned back normal after the El Nino and La Nina weather phenomenons plagued Southeast Asia's over the past two years. Gapki projects Indonesia's CPO production at 35.5 million tons and palm kernel at 3.20 million tons this year. However, the global economy has not recovered fully yet and therefore foreign demand for Indonesia palm oil products is expected to remain bleak.

He added palm oil prices are currently relatively high but will fall again after the May-June period when production of palm oil will show a peak. The CPO price may decline to the range of USD $600-700 per ton, Hasan said, especially because on several plantations the oil palm trees (that were planted in the 2012-2013 period) have become productive. In February 2017 the CPO price was USD $706.79 per ton, down from USD $726.49 per ton in the preceding month (data from www.indexmundi.com).

Domestic consumption of palm oil products in Indonesia this year is estimated to reach 12 million tons, provided the central government's B20 biodiesel program runs smoothly (this program sets the requirement to blend a mandatory 20 percent of fatty acid methyl ester - or FAME, derived from palm oil - with 80 percent of diesel).

China is the second-biggest importer of Indonesian CPO. In 2016 the world's second-largest economy absorbed 11 percent of Indonesia's total CPO exports (only India imports more CPO from Indonesia). However, with GDP growth in China estimated at 6.5 percent (y/y) in 2017 and the country seemingly more willing to import soybeans, CPO demand from China may decline in the remainder of 2017. Therefore, Gapki says Indonesia needs to raise its CPO exports to markets such as Africa or the Middle East.

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  31.5
(million tons)
 15.1  17.1  17.1  17.6 18.2  22.4  21.7  26.4  26.6
(in USD billion)
 15.6  10.0  16.4  20.2 21.6  20.6  21.1  16.5  18.6

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