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Again, crude palm oil (CPO) shipments from Indonesia - the world's largest CPO producer and exporter - declined. Based on the latest data from the Indonesian Palm Oil Producers Association (Gapki), palm oil exports from Indonesia fell 16 percent on a month-on-month (m/m) basis to 2.1 million tons in January 2016. This decline was mainly caused by falling palm oil demand from the key export countries China and India.
Again there has emerged speculation that Indonesia may not fully implement its ban on exports of concentrates (partially processed metals) in 2017. This controversial ban, part of the country's 2009 Mining Law, aims to boost domestic processing facilities and reduce the country's dependence on raw commodity exports. The ban was originally implemented in January 2014. However, as there was insufficient domestic smelting capacity full implementation would imply a huge revenue loss. Therefore, concentrate exports were allowed to resume (until 2017) provided exporters pay higher taxes, royalties and provide evidence that they are committed to develop smelters.
Economic turmoil that has pushed China’s growth to a 25-year low has a direct effect on Indonesia as China is the key trading partner of Indonesia. Concern about China’s economic slowdown (and the impact of this slowdown on the world economy) persist in 2016 as the country's Caixin/Markit manufacturing purchasing managers' index (PMI) contracted for the 10th straight month in December 2015 (at 48.2), while the services reading for December fell to a 17-month low (50.2).
The Indonesian rupiah is strengthening remarkably against the US dollar on Monday (21/12) despite expectation that the rupiah will become the worst-performing Asian currency in 2016 on capital outflows (amid more US interest rate hikes planned for 2016), Indonesia's falling foreign exchange reserves, and persistent low commodity prices. Based on the Bloomberg Dollar Index the Indonesian rupiah had appreciated 1.13 percent to IDR 13,760 per US dollar by 14:20 pm local Jakarta time on Monday (21/12).
Despite winter having arrived, global oil prices are still declining. Today (21/12), Brent crude prices plunged to the lowest level since 2004 on persistent concern about a global supply glut as the Energy Information Administration reported that US crude oil supplies rose 4.8 million barrels to 490.7 million in the second week of December, while the OPEC's production rate stood at 31.7 million barrels per day (bpd) in November 2015. Meanwhile, oil demand is expected to fall in 2016. For example, oil consumption in the USA is projected to fall to 1.2 million bpd next year, from 1.8 bpd in 2015.
The Indonesian Employers Association (Apindo) is optimistic that Indonesia's economic growth will reach 5.5 percent year-on-year (y/y) in 2016, a figure that is higher than the projections set by the central government and central bank. Optimism of Apindo is based on expectations that public and private investment will increase next year on the back of an improved investment climate in Southeast Asia's largest economy, brought about by the series of economic stimulus packages that were unveiled by the government in recent months as well as political and social stability.
More than 60 percent of Indonesia's soybean consumption still needs to be imported from abroad. To reduce its dependence on soybean imports Indonesia's Agriculture Ministry aims to enhance domestic soybean production. For this reason soybeans have been included in the government's list of strategic food commodities (other examples are rice, sugar and corn), meaning these food items get special attention from the government. The Agriculture Ministry targets to see the production of 1.5 million tons of soybean in 2016, up from an expected 920,000 tons this year. Meanwhile, Indonesian soybean demand in 2015 is estimated to reach 2.3 million tons.
Statistics Indonesia (BPS) announced today (05/08) that the Indonesian economy grew 4.67 percent (y/y) in the second quarter of 2015, the slowest pace since 2009. However, the result was in line with expectation. Most analysts assumed that economic growth would continue to slow as there has been no rebound in global commodity prices, interest rates remained high, people’s purchasing power weakened, government spending remained problematic, companies Q2-2015 earnings reports were not too good, and manufacturing contracted.
It is increasingly believed that the El Nino weather phenomenon will hit Indonesia in the next couple of months. Over the past weeks reports already surfaced about unusual dry weather impacting negatively on harvests of agricultural commodities in parts of Southeast Asia. In Indonesia, dry weather traditionally lasts from May to August. However, El Nino may cause warmer conditions and extending these into September hence affecting output in the peak harvest season. This will cut agricultural output and provide inflationary pressure.
In a meeting with Commission XI of Indonesia’s House of Representatives (DPR), Indonesian Finance Minister Bambang Brodjonegoro stated that the economy of Indonesia is currently facing four global risks. These four risks are low international commodity prices, China’s slowing economic expansion, the Greek debt crisis in the Eurozone and, lastly, further monetary tightening to be conducted by the US Federal Reserve. These issues are not new and have already contributed to slowing economic growth in Indonesia.
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Analysts expect that Indonesia's benchmark stock index (IHSG) will end mixed today (20/08) after yesterday's large plunge amid heavy market concerns. Yesterday, the index dropped 5.58 percent to 4,313.52 points, the lowest since October 2011. Indonesia posted a current account deficit in the second quarter of 2013, while Thailand entered into a recession. The MSCI Emerging Market index¹, which includes both countries, fell 1.4 percent to a six-week low. Below a short overview of factors that caused negative sentiments on Indonesia's market.
For several weeks now, Indonesia's main stock index (IHSG) has been experiencing a sharp correction. As I wrote in my previous columns, market participants have been waiting for several important macro economic data, to wit Indonesia's economic growth figure for the second quarter of 2013, the July 2013 inflation rate, and the country's trade balance statistics for the first six months of this year. Now all above results have been released, we can analyze further the impact of these macroeconomic results as well as investors' reaction to it.
After its one-week holiday, Indonesia's main stock index (IHSG) started in negative territory. The index fell 0.93 percent to 4,597.78 on Monday (12/08) with the country's miscellaneous industry sector and the consumer goods sector leading the fall. It is interesting to note that most Indonesian mining companies showed significantly rising share prices as prices of mining commodities are expected to increase. According to Morgan Stanley, coal imports to India will grow while the global coal price has already reached its lowest point.
Worldwide, most stock indices fell on Wednesday (07/08), particularly Japan's Nikkei index, after it has been speculated that the Federal Reserve may phase out the third round of its quantitative easing program in September 2013. This program, involving a monthly USD $85 billion bond-buying package, aims to spur US economic growth while keeping interest rates low. However, one important side effect has been rising stock markets around the globe. Now the end of QE3 is in sight, investors shy away from riskier assets.
Indonesia’s inflation rate in July 2013 was significantly higher than analysts had previously estimated. The country’s July inflation figure accelerated to 3.29 percent. On year-on-year basis, it now stands at 8.61 percent, the highest inflation rate since many years. Particularly food commodity and transportation prices rose steeply. The main reason for Indonesia's high inflation is the reduction in fuel subsidies. In late June, the government increased the prices of subsidized fuels in order to relieve the ballooning budget deficit.
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.
Last week (22-26 July 2013), Indonesia's main stock index (IHSG) ended 1.39 percent down at 4,658.87. The daily value of transactions on the regular market narrowed to an average of IDR 3 trillion (USD $300 million) from IDR 3.84 trillion in the previous week. Foreigners still recorded net sales amounting to IDR 92.9 billion (USD $9.3 million). Lack of positive sentiments, financial results of companies that were below expectation and the continued weakening of the rupiah against the US dollar resulted in the decline of the index.
Investment realization in Indonesia grew 30.2 percent to IDR 192.8 trillion (USD $19.8 billion) in the first six months of 2013 (compared to the same period last year). This result implies that 49.4 percent of the investment target for full 2013 has been achieved. The Indonesia Investment Coordinating Board (BKPM) aims to collect IDR 390.3 trillion in investments this year. This target is divided in domestic direct investment (DDI) of IDR 117.7 trillion and foreign direct investment (FDI) of IDR 272.6 trillion.
Indonesian exports of crude palm oil (CPO) in June 2013 grew about 29 percent to 1.62 million ton compared to the same month last year. Although production of CPO in Indonesia slowed down in June, higher demand for Indonesia's CPO is met because there are still sufficient amounts of stockpiles. A high official at the Indonesian Palm Oil Association (Gapki) said that stockpiles in 2012 grew to 5 million tons as global demand for the commodity weakened sharply amid international economic turmoil.
The Indonesian rupiah (IDR) is experiencing one of its worst losing streaks in a decade. On Friday (19/07), the currency weakened to IDR 10,070 against the US dollar, which implies a devaluation of 4.14% in 2013 so far. The central bank of Indonesia, Bank Indonesia, does all it can to support the currency: the country's lender of last resort supplies dollars to the market triggering the reduction of foreign reserves from USD $105 million at end-May to $98 million at end-June, and raised its benchmark interest rate (BI Rate) by 50 bps to 6.50%.
