JAKARTA (TheInsiderStories) – Indonesia got a good news from India on the crude palm oil (CPO) export. According to a senior official at the Industry ministry, India’ vegetable oil imports are likely to rise by 7.3 percent in a fiscal year of 2019 – 2020.
The rising demand from the largest importer of palm oil in the world certainly provides a foundation for strengthening prices of the products in the market. On Monday (07/22) the CPO prices for the September delivery contract on the Bursa Malaysia Derivatives Exchange (BMDEX) closed up 0.66 percent to MYR1,986 (US$482.04) a ton.
This movement gave a hope to Indonesia and Malaysia, the two world’ largest palm oil producers because of the European Union (EU) discrimination. In addition, the positive sentiment of the United States (US) – China trade agreement also has the potential to hoist CPO prices even higher this year, rated by some analysts.
China is willing to buy more agricultural products from the US, is also one of the drivers of rising CPO prices. Chinese government is also reportedly discussing with state and private companies related to plans to increase the purchase of US agricultural products, including soybeans.
The price movements of soybeans and palm oil are often in the same direction and influence because soybean oil is a substitute for palm oil. Both of them compete with each other in the global vegetable oil market.
Previously, an Indonesian palm oil association (GAPKI) noted that palm oil exports have begun to erode over the foreign policies on some of Indonesia’ main export destinations, especially to India, China, Bangladesh, and EU
The organization recorded in April 2019, Indonesia’ CPO and derivatives, oleochemical also biodiesel decreased by 18 percent compared to total exports in March from 2.96 million tons to 2.44 million tons.
Later on, the export performance began to crawl up, but it was still below expectations. In May 2019, Indonesia’ CPO exports reached 2.79 million tons, up 14 percent compared to the total exports in the previous month.
GAPKI reported that the total exports of CPO and its derivatives (excluding oleochemicals and biodiesel) in April 2019 declined 27 percent from 2.76 million tons in March to 2.01 million tons in April. In May, total exports were recorded at 2.40 million tons, an increase of 18 percent compared to the previous month.
But, the agency rated, that some of the main export destination countries have enacted regulations that are included in the category of trade barriers, for an example India, which raises palm oil import tariffs to the maximum.
As we know, the refined product import tariff from Malaysia is 45 percent of the applicable tariff of 54 percent. As a result of the discount on import duties enjoyed by Malaysia, the Indonesian palm oil market to India is increasingly eroded, because the Indian market is dominated by Malaysia.
By this, the Indonesian government is expected to immediately accelerate economic cooperation with India for the implementation of the same import tariff, so that Indonesia can compete to enliven the Indian market.
Likewise with the EU, since the adoption of the RED II Delegated Act last March, it is undeniable that it has helped to build up the negative sentiment of the Indonesian palm oil market in Europe.
GAPKI noted that the export of CPO and its derivatives to the Blue Continent continued to drop. In April 2019, CPO exports and derivatives from Indonesia recorded a 37 percent decline compared to March. Then in May again dropped 4 percent compared to April. In details, March 498,240 tons, April 315,240 tons and May 302,160 tons.
Another major export market that is also experiencing dynamics in China. In April, the second largest country’ imports rosed by 41 percent compared to March, from 353,460 tons to 499,570 tons, then in May it dropped 18 percent (or from 499,570 tons down to 410,560 tons).
While, in the absorption of domestic Biodiesel, throughout April was only able bought 516 thousand tons, or eroded 2 percent compared to last March. In May, uptake showed a positive progress, reaching 557 thousand tons or up 8 percent compared to April.
Seeing the dynamics and sentiments of this regulation, the government is expected to be able to accelerate the implementation of the 30 percent biodiesel use (B30) immediately, after the road test are completed in October.
“Likewise the state electric company (PT Perusahaan Listrik Negara or PLN) should be able to immediately use palm oil to generate electricity,” it said.
GAPKI considered that if the domestic absorption program runs optimally is around 9 million tons and PLN is around 3 million tons, it can increase the absorption of the domestic market and reduce the impact of high stock. At the same time, Indonesia can reduce oil imports and do not need to depend entirely on global markets, especially Europe.
Furthermore, the organization urged the government to accelerate the palm oil replanting program to maintain the balance of the stock.
Replanting will reduce production for the next few years, Indonesia will improve productivity and efficiency in the long run.
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