Home Investor Corner Indonesia Palm Oil Output to Reach 43MT in 2019-20

Indonesia Palm Oil Output to Reach 43MT in 2019-20

JAKARTA (TheInsiderStories) – United States Department of Agriculture (USDA) forecasting Indonesia’ 2019-2020 palm oil output at 43.0 million tons (MT), up 1.5 MT or 4 percent from last year. In annual basis, the production increase is attributed mainly to area expansion as yield is expected to be slightly down from 2018-2019.

“Mature palm area is forecast at 11.8 million hectares, up 4 percent from 2018/19. Annual yield growth has been significant following the 2015/16 El Niño event where dry weather negatively impacted yields in both Sumatra and Kalimantan–yield from 2015/16 to 2018/19 increased by 17 percent,” the reports said.

Yield for 2019-2020, however, is forecast at 3.66 tons per hectare down, slightly from last year due to a significant decline in crude palm oil (CPO) prices during the last quarter of 2018-2019 as both large- and small-holder plantations reduced fertilizer applications.

This year’s demand for palm oil, said the report, is predicted to decline as an effect of United States (US) – China trade negotiation. Demand for world palm oil has contracted or decreased for the first time in the last two decades during the 2019-2020 harvest period.

The trigger for the contraction was due to an increase in the supply of oil from grain from India, as well as a decline in demand from China as a result of negotiations with the US.

So far, the European Union (EU) has been one of the world’ largest palm oil importers. However, lately, many European buyers have begun to avoid buying palm oil due to fears of environmental damage due to oil palm cultivation.

Meanwhile, the Washington – Beijing trade war also caused potential demand from China – the third largest palm oil market – to be filled with uncertainty. Malaysia’ palm oil exchange slipped almost 8 percent in April due to rising inventories, while world demand declined. But according to some traders, sustained sub-par demand in key markets is expected to keep prices steady.

Palm oil exports from Malaysia to the EU fell to 264,005 tons in April from 405,867 tons the previous month, according to cargo surveyor Societe Generale de Surveillance (SGS). The purchase of Chinese palm oil from Malaysia fell to 98,635 tons in April from 264,722 tons in March.

Supply flood risk drags the lowest crude palm oil (CPO) price since December 2018. Since the beginning of know 2019, CPO prices have been corrected to 4.38 percent. Because production has increased throughout the year, the position of Malaysian palm oil stocks at the end of December 2018 reached 3.21 MT, the highest since 19 years ago.

It was also the mastermind behind the correction of CPO prices by 16 percent throughout 2018. In March 2019, palm oil stockpiles had indeed decreased by 4 percent compared to the month-on-month to 2.91 MT. However, its position is still higher compared to March 2018 which amounted to 2.33 MT.

This year, it seems that the demand for palm oil still tends to be weak caused the impact of the world economic slowdown is still felt. While, the reference price of Indonesian CPO products for the determination of Export Duty for the May 2019 period was $573.31 per MT.

The reference price edged up 0.91 percent on a monthly basis or US$ 5.19 from the April 2019 period which was recorded at US$ 568.12 per metric ton.

The government will implement export levies on CPO starting June 1, 2019, for US$ 25 per ton if international CPO prices are between US$ 570-619 per ton and US$ 50 per ton if prices rise past US$ 619 per ton.

US$1: Rp14,300

Written by Lexy Nantu, Email: lexy@theinsiderstories.com