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CPO output to fall to 30m tons: Gapki
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GPO (Source: Gapki/File)
I
ndonesian businesspeople and economists expect crude palm oil (CPO) supply in the country to fall this year due to the El-Niño effect last year and predict that the supply drop will temporarily help price recovery amid a global demand slowdown.
The Indonesian Palm Oil Producers Association (Gapki) predicts CPO output in the country will fall by 15 to 20 percent this year to around 30 million tons, from 34 million tons last year. If its prediction is true it would be the lowest output in the last 20 years.
“The CPO price [CIF Rotterdam] for the January to October period stands at US$663 per ton on average, a recovery from the six-year-low of $630 per ton last year, thanks to a decrease in supply this year due to prolonged drought last year,” said Gapki chairman Joko Supriyono at the 12th Indonesia Palm Oil Conference and 2017 Price Outlook (IPOC) on Thursday.
More CPO products, however, are predicted to be absorbed by the domestic market. The exports of CPO and palm oil products are expected to drop around 15 percent to 22.5 million tons due to the global slowdown.
Joko estimated that crude palm oil (CPO) supply would go up next year due to a prolonged rainy season this year, but would not hit Indonesian palm-oil producers thanks to the government’s flexible mandatory biodiesel program that has been proven capable of absorbing CPO supply.
“My prediction is that it [supply] will go up quite significantly next year, and usually if it goes up and the global demand has yet to recover at full speed, it will be a negative sentiment for the price,” he said.
However, Cornell University economist Iwan Jaya Azis argued that the biodiesel program would only help the industry a little because of the low CPO volume used. Biodiesel production is set to reach 3 kiloliters of B-20 (the mix of diesel and palm methyl ester with 80:20 ratio).
Iwan projected that the CPO might go down along with the demand slowdown amid a lackluster global economic outlook. “We honestly don’t know what will happen next year but the indication shows that the demand could be sluggish along with the lackluster global economic outlook,” he said.
Iwan predicted the global economy would grow at 3 percent or lower and countries would compete with each other to increase exports to trigger growth. Therefore, Indonesia’s CPO must increase its competitiveness to survive in the global market.
Gapki called for the government to use the CPO fund to upgrade the supporting infrastructure of the industry in a bid to improve the competitiveness of Indonesian products. Currently, Indonesian palm oil products are discounted at around 3 percent compared to Malaysian products.
“Right now, the price of Indonesian palm oil products are discounted at US$15 to $20 compared to Malaysian products due to bad infrastructure that affect the quality of the products,” Joko said.
He also urged the government to boost downstream industries to optimize high value-added products such as vegetable oil, specialty fats — commonly consumed as salad dressing, bakery fat, as well as oleo chemicals for cosmetics and soaps.
“Some 75 percent of the estimated 22.5 million tons of palm oil products exported this year are in the form of derivative products,” Joko stated, adding that it could increase on the back of the government’s commitment to establish special economic zones (KEK) for manufacturing palm oil products.
