The crude palm oil (CPO) price touched its lowest level since 4 May 2017 due to expectations of rising CPO production in Malaysia, the world's second-biggest palm oil producer. At the end of trading on Tuesday (06/06) the palm oil price had fallen 0.08 percent to 2,497 ringgit (approx. USD $585.07) per ton on the Malaysian bourse (August 2017 contracts).
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Today's Headlines Palm Oil
Despite expectations of rising demand ahead of - and amid - the Ramadan and Idul Fitri celebrations, the price of crude palm oil (CPO) is expected to decline up to the end of June 2017. At the end of the trading day on Tuesday (30/05) the CPO price had fallen 0.56 percent to 2,502 ringgit (approx. USD $584.46) per ton (August 2017 contract) on the Malaysia bourse. So far this year, the CPO price has tumbled 14.48 percent.
Again the government of Indonesia and the European Union (EU) are on opposite sides when it comes to the palm oil sector. Last week, EU parliament passed the Resolution on Palm Oil and Deforestation of Rainforests. This resolution will make it increasingly difficult for Indonesia to export palm oil to the EU as the bloc wants to gradually reduce the use of vegetable oils, including palm oil, that are not sustainably produced in biodiesel. This is a strategy to combat deforestation as well as human rights violations in this sector (for example child labor).
The Indonesian Palm Oil Producers Association (Gapki) expects Indonesian crude palm oil (CPO) exports to reach 27 million tons in 2017 (up 1.6 percent from realization in the preceding year), or USD $18.90 billion in terms of export value (up 1.7 percent from the preceding year). In other words, Gapki sees very limited growth for Indonesia's CPO exports in 2017. This bleak outlook is caused by sluggish global demand (China may in fact curtail CPO imports), while the recovery of the CPO price is not expected to be significant.
Indonesia kept its export tax for crude palm oil (CPO) shipments at USD $18 per metric ton for March 2017 as the government's March reference CPO price was determined at USD $825.8 per ton, up 1.27 percent (m/m) from the reference price in the preceding month. When this reference CPO price of Indonesia is set below USD $750 per ton, the export tax is scrapped. When the price reaches the range of USD $750 - $800, then Indonesian authorities introduce a USD $3 per ton export tax, followed by a USD $18 per metric ton export tax if the reference price rises to the range of USD $800 - $850 per ton.
The Indonesian Palm Oil Board (DMSI) says higher productivity is the key to boost Indonesia's crude palm oil (CPO) production. Amid international pressure, particularly after the devastating forest fires on Sumatra and Kalimantan in the second half of 2015, Indonesian President Joko Widodo announced to issue a five-year moratorium on new palm oil concessions to limit the expansion of oil palm plantations in Indonesia. Although Indonesian authorities want to see rising CPO output (in order to safeguard foreign exchange earnings and create employment opportunities), further growth should come on the back of rising productivity, not by adding new plantations.
The Indonesian Palm Oil Producers Association (Gapki) announced that Indonesia's palm oil production realization reached 34.5 million tons in 2016, down 3 percent from a production figure of 35.5 million tons in the preceding year. The reason why Indonesia's palm oil output fell in 2016 was the El Nino weather phenomenon that brought dry weather to Southeast Asia. The unconducive weather conditions plagued harvests in the region, although the 3 percent decline was much softer than earlier predictions. Earlier, several analysts predicted a 15-30 percent (y/y) decline of palm oil output in Indonesia in 2016.
Indonesia, the world's largest producer and exporter of crude palm oil (CPO), set the export tax for its CPO shipments at USD $18 per metric ton for February 2017, significantly higher than the USD $3 per metric ton export tax in the preceding month. Indonesia's benchmark February CPO price was set at USD $815.5 per ton, rising further above the USD $750 per ton threshold that the Indonesian government uses to separate a zero export tax policy from the setting of an export tax.
The European Union (EU) is a key export market for Indonesian crude palm oil (CPO) producers. The EU consumed 6.3 million tons of CPO in full-year 2015, 65.2 percent of which (about 4.2 million tons) originated from Indonesia, the world's biggest palm oil producer and exporter. After India, the EU is Indonesia's biggest client in terms of CPO shipments. However, despite the big market for Indonesian CPO in the EU, there are major challenges for Indonesian CPO exporters due to negative (anti-palm oil) campaigns launched in the EU.
Based on the latest data from the Indonesian Oil Palm Estate Fund (BPDP-KS), Indonesia exported 25.7 million tons of crude palm oil (CPO) in full-year 2016, a 1.9 percent year-on-year (y/y) decline from 26.2 million tons of CPO shipments in the preceding year. However, in terms of value Indonesia's CPO exports actually surged 8 percent (y/y) to USD $17.8 billion in 2016. Indonesia is the world's largest exporter and producer of palm oil, followed by Malaysia.
Latest Columns Palm Oil
Last week, president Susilo Bambang Yudhoyono extended the moratorium on new permits to convert natural forests and peat lands for a further two years. In 2011, Indonesia's government signed the two-year primary forest moratorium that came into effect on 20 May 2011 and expired in May 2013. This moratorium implies a temporary stop to the granting of new permits to clear rain forests and peat lands in the country. The moratorium particularly aims to limit Indonesia's quickly expanding palm oil industry.
Although the United States continues its traditional focus on direct investments in developed countries, primarily in Western Europe, there has been a significant rise in US investments in Indonesia in recent years. Whereas US investments in the developed economies of Western Europe is mostly found in the financial sector and through holding companies, in developing Asia, the US is more focused on the manufacturing sector due to lower production costs. In the last two years, the US emerged as the second-largest investor in Indonesia after Japan.
Shareholders of Astra Agro Lestari, Indonesia's largest agribusiness company by value (which is particularly engaged in palm oil and rubber plantations), agreed to distribute IDR 1.08 trillion (USD $111 million) in dividends to its shareholders. The allocated amount is equivalent to about 45 percent of the company's net profit in 2012. Dividend per share is set at IDR 685 (USD $0.071). Last November, the company had already paid interim dividend of IDR 230 per share. Final dividend will be paid on 3 June 2013.
Indonesian companies engaged in the production of a variety of agricultural products, such as palm oil, experienced a rather poor year in 2012 regarding net profit. Global economic turmoil has reduced the world's consumption of palm oil in both the developed markets and developing markets. In particular decreased demand from China, the world’s biggest buyer after India, made a negative impact on the balance sheets of Indonesian companies.
Associated businesses Palm Oil
- Astra Agro Lestari
- Astra International
- Austindo Nusantara Jaya
- Bakrie Sumatera Plantations
- Dharma Satya Nusantara
- Eagle High Plantations
- Eterindo Wahanatama
- Golden Plantation
- Gozco Plantations
- Indofood Sukses Makmur