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Mooncakes sweeten Indonesian palm oil outlook
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Fresh oil palm fruit bunches are stored in containers before being processed into palm oil. (sampoernastrategic.com/exlusive)
For Indonesian palm oil producers, the traditional Chinese mooncake may just have saved the day.
After a disappointing year, the local palm oil industry is finally seeing light at the end of the tunnel with improving prices and expected increases in demand, especially from China, one of the world’s largest importers of the commodity.
Crude palm oil (CPO) futures, traded in the Bursa Malaysia Derivatives, saw a price surge in the past few days to about 2,500 ringgit (US$622.98) per ton from the usual 2,200 to 2,300 ringgit.
Demand from China, which will be holding a major autumn festival next month, is expected to revive as palm oil stocks recover, resulting in cheaper supplies.
Earlier this week, Bloomberg reported that a jump in demand for oil to make fried foods and seasonal treats like mooncakes during the three-day mid-autumn festival in China next month may boost buying further.
Indonesia, the world’s biggest producer of palm oil, can also breathe a sigh of relief after months of weak sales. According to data from the Indonesian Palm Oil Producers Association (Gapki), exports increased by 4 percent in July, compared with the previous month’s figure of 1.9 million tons.
Total exports in the first half of the year reached just a little more than half of those in 2015. As of July, Gapki recorded an estimated total of 14.4 million tons in exports, about half of last year’s total of 27.4 million tons.
Furthermore, companies have produced an estimated 18 million tons as of July, while last year’s total production was 35.5 million tons.
Bank Central Asia (BCA) chief economist David Sumual said the palm oil industry was expected to improve in the second half of the year with better commodity prices and better weather.
David said the improvement of the economy in Indonesia’s main palm oil export destinations, including India, China and the EU, would also boost demand. Also, Indonesia’s palm oil exports to countries such as the US, which is traditionally not a large palm oil importer, have increased in the last few months.
“Our palm oil exports to the US have increased. This is a pleasant surprise because the US is known to prefer soybean over palm oil,” David said over the phone on Friday.
Last year, the US Food and Drug Administration (FDA) announced that artificial trans fats would no longer be found in snack foods, baked goods and frozen vegetables starting in 2018. With the ban, palm oil has been named the primary replacement.
Palm oil stockpiles in China, meanwhile, currently stand at about 300,000 tons, the lowest over the past six years, according to the China National Grain and Oils Information Center. Purchases typically rise several months before the mid-autumn festival as refiners and food makers restock edible oils.
The global palm oil industry has experienced a slump in the past year along with an economic slowdown and high prices caused by a lack of supply because of a disruptive weather phenomenon called El Niño. Main palm oil export destinations such as China, India and the EU had started to look to other alternatives such as soybean and sunflower oil.
Separately, CPO producer Sampoerna Agro head of investor relations Michael Kesuma said the palm oil industry in the last few weeks had shown a bullish trend, which is expected to last until next year. As stocks increase, prices start to improve, he said.
“We can still feel the negative effects of last year’s El Niño, which is understandable because it was the worst we’ve seen in years, but we can now see signs of recovery,” Michael said over the phone on Friday.
However, Gapki secretary-general Togar Sitanggang said the association did not have high expectations for the industry for the rest of the year, despite it showing signs of recovery. The commodity’s price has increased in the last few days, he said, but still has a long way to go to bring it up to 2013’s level, when the average price was $851 per ton.
“Although there are improvements, we prefer not to be overly optimistic as global economic conditions are still uncertain,” he said.
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