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Wilmar wants more domestic CPO demand
Singapore-based Wilmar International Ltd
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ingapore-based Wilmar International Ltd., the world's largest palm oil trader, said higher domestic demand from the Indonesian market could offset a potential stockpile surge next year that could spike palm-oil prices, as outlook for overseas demand remained bleak.
'There is an additional 1.5 to 2 million tons of CPO for our stock [next year]. If we're unable to create more domestic demand, prices will plummet and smallholder farmers, who produce 40 percent of our CPO, will suffer,' said Darwin Indigo, Wilmar's director for Indonesia, on the sidelines of a recent sustainable palm oil conference in Central Jakarta.
The country produced an estimated 31.5 million tons this year, according to the Indonesian Palm Oil Producers Association (Gapki). From this amount, 9 million tons was absorbed by the domestic market, while the remaining 22 million tons was shipped overseas.
For 2015, Darwin has projected nationwide CPO production to reach around 32.5 to 33 million tons, due to additional input from recently productive land.
'This year was much drier than previous years, and we will see the impact on palm oil production in six to 12 months. However, this is offset by production coming from land that was converted around 3 to 5 years ago for growing,' he said.
Darwin also said he was somewhat pessimistic about Indonesia's overseas markets, due to the current challenges facing Indonesian palm oil.
Apart from the ongoing negative campaign waged against the commodity, he attributed this to China's excess production of soybean oil, which was caused by the increase in soybean imports to fulfill its livestock fodder requirements.
Palm oil, used in many products from cooking oil to cosmetics, is intensively scrutinized due to its high saturated fat content, which is detrimental to health, as well as deforestation and bad environmental practices seen in plantations across the country.
It also used to be the cheapest edible oil, but high demand has pushed up its price, narrowing the gap with other oils such as soybean and grape seed.
Palm oil is the second-top contributor to total exports in Indonesia, after coal. It contributed $19.22 billion, or 10.53 percent, to the country's total exports of $182.57 billion last year.
The commodity has recently lost its market share in India, Indonesia's biggest buyer, as the price gap with soybean oil shrank to an average US$84 each ton this year from $244 in 2013, according to data compiled by Bloomberg.
According to Darwin, Indonesia's largest export market for CPO is India, accounting for 20 percent of total exports. It is followed by countries of the European Union (EU) with 19 percent and China with 15 percent.
'Honestly we are quite worried. [...] With additional pressure from non-tariff barriers like antidumping in Europe and safeguard duty in India, we'd be happy to maintain our exports at the current level,' Darwin said.
'This is why the domestic market has become very important. If the government is serious about
looking after its smallholder oil-palm farmers, they must find a solution to next year's increased stock,' he added.
As one possible solution, Darwin suggested the government increase its 2015 mandatory biofuel blending policy from a 10 percent biodiesel content (B10) to a 20 percent blend (B20). He said that this switch would increase CPO demand in Southeast Asia's largest economy by 6 or 7 million tons.
