JAKARTA (TheInsiderStories) – The price of crude palm oil (CPO) is projected to strengthen in the first quarter of 2018, due to the impact of La Niña weather phenomenon and rising CPO demand in traditional big CPO importing countries, analysts and industry players say.

Palm oil output from Indonesia, the world’s biggest grower, is projected to rise to 38.5 million tons in 2018 from 36.5 million tons this year, said Fadhil Hasan, a board member of the Indonesian Palm Oil Association, or GAPKI.

Palm oil has become one of the most important vegetable oils, providing 30 per cent of the world’s vegetable oil. Demand for palm oil to feed the world and for biofuel keeps rising, every year. Indonesia, as the largest palm oil producer, plays a very significant role, while the global market closely tracks Indonesia’s palm oil market, and this should intensify in 2018.

In the short run, it seems that land expansion will remain the main strategy to increase CPO production capacity. In the medium term, the trend of industry integration will increase, along with the growth of the downstream industry for oleochemical and biofuel, according to PricewaterhouseCoopers research.

As for the medium and long-term period, development will emphasize the efficiency and effectiveness of plantation management as well as increasing productivity through better refinery management.

Indonesia-based foreign exchange broker Garuda Berjangka said it sees the palm oil price rising above the 2,800 Ringgit ($689.02) per ton level in the first quarter of 2018. The primary reason is the arrival of the rainy season, an event that disturbs both CPO output and distribution channels, which would lead to tightening of CPO supplies and ultimately support CPO prices.

Moreover, chances of the occurrence of the La Niña weather phenomenon, which brings wet weather to Southeast Asia, has increased to 67 per cent, according to the US Climate Prediction Center. La Niña is expected to be felt, only moderately, between December 2017 and February 2018.

Garuda Berjangka says CPO reserves are expected to decline due to replanting (rejuvenation) of oil palm trees at plantation estates. Earlier, the Indonesian government said it had launched a new program that aims to replant 20,000 hectares of smallholder palm oil plantations across Indonesia in 2017 (with the condition that these farmers meet the requirements that are stipulated by Indonesian Sustainable Palm Oil [ISPO] certification).

It is estimated that around 2.4 million hectares of Indonesia’s palm oil plantations are in need of replanting, while 400,000 hectares of plants are considered ‘old’. Indonesia has a total of 11.9 million hectares of palm oil plantation, mostly located on the islands of Sumatra and Kalimantan.

PT Perkebunan Nusantara III (Persero), a state-owned enterprise engaged in Indonesia’s agriculture sector, seeks Rp48.7 trillion revenues in 2018, increasing 77 per cent from this year’s target of Rp37 trillion.

PTPN III CEO Dasuki Amri said that in 2018 the company intends to target 9.1 million tons of fresh palm fruit sales, jumping from its 2018 initial sales projection of 8.8 million tons. Meanwhile, CPO sales are targeted at 2.1 million tons, up from 1.8 million tons this year.

“There are old trees that have to be replanted, so (the number of) productive plants will decline,” said Amri.

The estimates for 2017 and 2018 are lower than palm oil production of 2.38 million tons last year. The company has produced 1.9 million tons of palm oil during the first 10 months of this year.

Amri added that in 2018, the company will not expand oil palm plantations, but will rather continue to improve the quality of plantations and processing facilities, in line with the company’s program.

“The quality improvement program is targeted to increase palm oil (CPO) production from about 4 tons per hectare to 6-8 tons per hectare over the long term, by prioritizing structured intensification and research in a sustainable way,” he said.

Written by Elisa Valenta, email : elisa.valenta@theinsiderstories.com