On 3 August 2014, 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 in the last seven days. Most of the topics involve economic topics such as the performance of the rupiah exchange rate, July 2014 inflation, the Lebaran holiday period, foreign direct investment, palm oil export, an analysis of the Asian financial crisis, religion in Indonesia, and more.

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The Agriculture Ministry of Indonesia expects that domestic production of palm oil in 2014 will decline 10 percent (roughly two million tons) from last year due to the possible impact of the El Niño weather cycle in the second half of this year. El Niño is a weather phenomenon that occurs once every 5 years on average and involves periodical warm ocean water temperatures off the western coast of South America. This can cause climatic changes across the Pacific Ocean, impacting on the global commodities market.

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The Indonesian Palm Oil Association (Gapki) expects that Indonesian exports of crude palm oil (CPO) and palm oil derivatives will increase between 10 and 15 percent to 11.29 million tons in the second half of 2014 from 9.82 million tons in the first half of this year. If achieved, then total CPO exports (and derivatives) from Southeast Asia’s largest economy in 2014 would be 21.11 million tons. Assuming an average CPO price of USD $895 per ton, these exports can be worth USD $18.89 billion in total.

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Indonesian Finance Minister Chatib Basri estimates that the trade balance of Indonesia may post an USD $500 million surplus in May 2014 amid improved performance of the country’s crude palm oil (CPO) exports, both in terms of price and volume (crude palm oil being one of the most important foreign exchange earners of Indonesia). Concern about Indonesia’s trade balance (and current account balance) had returned after Indonesia recorded an USD $1.96 billion deficit in the previous month.

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Indonesia Investments has updated the company profile of Sampoerna Agro in the Indonesian Companies section. Sampoerna Agro, part of the Sampoerna Strategic Group, is one of the country’s leading producers of palm oil and palm kernel. It further produces rubber and sago. It operates a total of 120,225 hectares of oil palm estates, 2,810 hectares of rubber estates and 10,351 hectares of sago estates, mostly located on the islands of Sumatra and Kalimantan, and owns six palm oil mills.

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The central bank of Indonesia (Bank Indonesia) expects to see a trade surplus in May 2014. Governor of Bank Indonesia Agus Martowardojo stated that he is optimistic that Indonesia’s trade balance will show positive growth after recording a shocking deficit of USD $1.96 billion in April 2014. This deficit was mainly the result of weak global demand for crude palm oil and coal, both of which are Indonesia’s most important foreign exchange earners in the non-oil & gas sector. However, this global demand is expected to have remained weak in May.

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The Indonesian Palm Oil Board (DMSI) expects exports of Indonesian crude palm oil (CPO) as well as its derivatives to fall about six to ten percent to 19-20 million tons in 2014 (from last year's export realization of 21.2 million tons). Lower CPO exports are primarily the result of Indonesia's mandatory biodiesel program which leads to increased domestic consumption of CPO. Traditionally, Indonesia exports about 75 percent of its total CPO production, particularly to the giant economies of China and India.

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The Governor of Indonesia’s central bank (Bank Indonesia), Agus Martowardojo, expects that the country’s trade balance will post a surplus of around USD $600 million in April 2014, roughly similar to the surplus that was recorded one month earlier (USD $673 million). The April 2014 surplus would be supported by an improvement in non-oil & gas exports, stable commodity prices (particularly coal and crude palm oil/CPO), as well as the waning influence of the Minerba Act.

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On 18 May 2014, 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 in the last seven days. Most of the topics involve political and economic topics such as updates on the presidential election, the revision of Indonesia's macroeconomic assumptions, youth unemployment, palm oil, coal, company profiles of HM Sampoerna and Telekomunikasi Indonesia, and more.

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Indonesian crude palm oil (CPO) exports may have increased 3.4 percent (month-to-month) to 1.85 million metric tons in April 2014 according to the median forecast of five analysts and traders compiled by Bloomberg. Exports are forecast to increase as buyers boost purchases ahead of the holy Muslim fasting month Ramadan in June and Idul Fitri celebrations. These festivities always trigger increased demand for palm oil. If this projection is accurate, it would imply that Indonesian CPO exports in April are the highest since December 2013.

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Malaysia, the world’s second-largest crude palm oil (CPO) producer and exporter, will continue its duty-free export tariff for CPO in January 2015 according to information from the Malaysian customs department. Starting from September 2014 Malaysian authorities have implemented a duty-free CPO export policy in an effort to boost global demand and support international CPO prices (which have fallen nearly 20 percent this year). Indonesia, which has seen duty-free CPO shipments since October 2014, is expected to follow suit.

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Reserves of crude palm oil (CPO) in Indonesia may have declined for a second straight month in October on the back of drought and an increase in exports from Southeast Asia’s largest economy. The delayed impact of drought (which even managed to dry up several rivers in West Kalimantan in October) limited production of CPO in recent weeks. Meanwhile, exports have increased after Indonesia and Malaysia - the world’s two top palm oil producers - scrapped export taxes to boost demand for this commodity.

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Australia's Bureau of Meteorology is increasingly convinced that the world needs to prepare for a new El Niño cycle. According to the institution, the impact of this new cycle will be felt starting from July 2014 and may continue through the winter. Also the European Center for Medium range Weather Forecasting (ECMWF) and the US Climate Prediction Center stated that chances of a new El Niño cycle in 2014 are becoming higher, although it is too early to provide an indication of this year's strength of the weather phenomenon.

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Indonesia has the potential to become a global force in the biodiesel industry because of the country’s position as the world’s top producer of crude palm oil (CPO). In 2014, Indonesia’s CPO production is estimated to total 30 million tons. Traditionally, Indonesia exports about 75 percent of its total CPO production, particularly to the giant economies of China and India. As such, this commodity is one of Indonesia's most important foreign exchange earners, apart from coal, in the non-oil and gas sector.

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The Indonesian government is considering to stop exports of crude palm oil (CPO) to Europe from 2014 onwards as domestic CPO demand in Southeast Asia's largest economy is rising, brought on by the country's biofuel industry which is expected to grow 70 percent next year to 5 million tons. To curtail oil imports, the government stimulates the production of crude palm oil-based biofuel by raising the mandatory content of fatty acid methyl ester (which is made from palm oil) in biodiesel products from 7.5 percent to 10 percent.

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Usage of biodiesel for transportation in Indonesia is expected to reach 7.2 million kiloliter by 2015, a sharp increase from 600,000 kiloliter in the first nine months of 2013. State-owned Pertamina is expected to supply the extra 6.6 million kiloliter of biodiesel. The reason why the Indonesian government is eager to develop palm-based biofuel for transportation purposes is to reduce the country's reliance on the import of expensive diesel fuel. Imports of fuels and gas are the foremost reason that Indonesia is coping with a wide current account deficit.

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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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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.

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The recovery in global palm oil prices that seemed to have started last spring, has ended. A few months ago, optimism had colored expectations of many analysts as palm oil prices went up about 10 percent between early May and mid-June, after tumbling 30 percent in 2012 (causing that palm oil was one of the worst performing commodities in terms of price growth last year). However, the palm oil price increase earlier this year was merely the result of falling production rates in Indonesia and Malaysia, the world's largest palm oil producers.

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