The value of Indonesia's exports of crude palm oil (CPO) and its derivatives plunged 11.8 percent year-on-year (y/y) to USD $18.6 billion in 2015 from USD $21.1 billion in the preceding year. However, in terms of volume, Indonesian exports of CPO and its derivatives actually rose 21.7 percent to 26.4 million tons. The higher volume but lower earnings are explained by the palm oil price. Palm oil traded at an average of USD $614.20 per ton in 2015, down 24.9 percent (y/y) from an average price of USD $818.20 per ton in 2014.

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Persistent weak crude oil prices jeopardize smoothness of Indonesia's biodiesel program as cheap oil - currently trading below USD $30 per barrel - reduces demand for biodiesel and makes the biodiesel industry less economic viable. This year the government of Indonesia plans to launch the B20 biodiesel program (one notch up from the existing B15 program), referring to the requirement to blend a mandatory 20 percent of fatty acid methyl ester (FAME, derived from palm oil) with 80 percent of diesel.

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On 3 January 2016, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website over the last seven days. Most of the topics involve economic matters such as an overview of the performance of the Jakarta Composite Index in 2015, the best stock picks in 2016, Indonesia's biodiesel program, the fishery and banking sector, and much more.

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While many of Indonesia's coal producers have ceased operations as the production cost margin turned negative, the country's crude palm oil (CPO) producers are still making a profit despite palm oil prices also having weakened sharply in recent years. The Palm Oil Agribusiness Strategic Policy Institute (Paspi) said that production costs for palm oil producers stand in the range of USD $250 to USD $300 per ton, implying that with current CPO prices at around USD $550 per ton, CPO producers still make a reasonable profit.

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Global crude palm oil (CPO) prices may climb up to USD $800 per metric ton in 2016, from USD $575 per ton (FOB) currently, due to the looming implementation of the B20 biodiesel program in Indonesia and curbed CPO output in 2016. Moreover, global oil prices are expected to rise to around USD $60 per barrel in 2016. Higher petroleum prices should boost demand for biodiesel (diesel blended with palm methyl ester, which is subsidized through the Indonesian government's CPO fund program).

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The El Nino-inflicted dry weather in Indonesia and Malaysia, possibly the worst in nearly two decades, is expected to curtail crude palm oil (CPO) output in both countries, implying that palm oil prices can extend their rally into next year. Moreover, Indonesia will consume more CPO as the government will raise the mandatory amount of palm oil blended with diesel from 15 to 20 percent (part of its B20 biofuel program) in early 2016. Since August - when prices were at a six-year low - palm oil futures have surged 26 percent.

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Although 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), is no success yet, the government is expected to introduce the B20 biodiesel program (raising the mandatory content of fatty methyl ester in biofuel to 20 percent) in early 2016. To support the B20 program, eleven companies are ready to supply biodiesel to state-owned energy company Pertamina and publicly-listed petroleum and basic chemicals distributor AKR Corporindo between November 2015 and April 2016.

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Indonesian government officials announced that the recently-unveiled palm oil export levies will be imposed starting from Thursday (16/07). The new rules require that a USD $50 per metric ton levy is imposed on crude palm oil (CPO) exports, and a USD $30 per metric ton levy is imposed on exports of processed palm oil products. These palm oil export levies only need to be paid by exporters when the government’s reference CPO price falls below USD $750 per metric ton, effectively cutting the palm oil export tax to zero.

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On Wednesday (13/05), Indonesian President Joko Widodo showed his commitment to protect Indonesia’s biodiversity-rich environment as he extended the moratorium on the clearing of primary forest and peat-land by another two years. This moratorium, which had been first implemented by Widodo’s predecessor Susilo Bambang Yudhoyono in May 2011, aims to combat rapid deforestation in Southeast Asia’s largest economy. Furthermore, the Ministry of Environment and Forestry will study how it can further strengthen the moratorium.

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Indonesia’s new palm oil export levy is to be implemented in late May 2015. Rida Mulyana, Director General of Renewable Energy at Indonesia’s Ministry of Energy & Mineral Resources, stated that President Joko Widodo signed the regulation last night (05/05). The new levy means that a USD $50 (per metric ton) levy is to be imposed on crude palm oil (CPO) exports, and a USD $30 (per metric ton) levy on processed palm oil product exports. Proceeds from these export levies will be used to fund the government’s biodiesel (subsidy) program.

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In order to curb imports of oil, the government of Indonesia intends to stimulate the production of crude palm oil-based biofuel by increasing the mandatory content of fatty acid methyl ester (which is made from palm oil) in biodiesel products from 7.5 percent to 10 percent. Through this policy, the government claims to be able to save up to USD $3 billion as it needs less fuel imports. Fuel imports totaled USD $5.8 billion in the first six months of 2013 and form a major cause for the USD $9.8 billion current account deficit in Q2-2013.

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Indonesia's production of crude palm oil (CPO) in the first six months of 2013 rose 25.64 percent compared to semester I-2012 to 14.7 million tons, which is a little over half of this year's CPO production target. Despite weak global demand for the commodity (accompanied by falling CPO prices), growth was accomplished due to new seeds that became productive and because the total size of Indonesian palm oil estates continues to expand. Productive estates now stand at 9.4 million hectares from 8.7 million hectares last year.

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