2018 may be remembered as the year when Indonesia’s national palm oil output soared high above world demand levels, leading to strong pressure on the prices of the commodity for most of the year.

The year already saw it start with palm oil prices at weak levels, at around  RM 2,400 per ton. This price continued to slide throughout the year and by November, CPO purchase contract prices for February 2019 delivery had reached the lowest level in the past three years, at RM 1,960 per ton.

Experts have attributed the weak prices of the commodity to the drastic rise in production in Indonesia, the world’s top palm oil producer, exporter, and consumer.

The Indonesian Palm Oil Producers Association (GAPKI) said that Indonesia’s palm oil production in 2018 rose by 23 percent over production in the previous year, reaching 22.32 million tons. However, the country’s palm oil export by mid-2018 had only reached 19.96 million tons or two percent less than in the same period in the year before that.

One of the reasons for the lower export figure was said to be the 34 percent drop in the export of the commodity to India, reaching 2.50 million ton last year compared to 3,.74 million ton in the previous year. The drop was said to be the result of India’s policy to slap a high import duty on palm oil to protect its domestic oil refinery industry.

Some other traditional main markets for Indonesian palm oil include China, the European Union, Africa, Bangladesh, the Middle East, and Pakistan, and the government is currently probing new markets for its commodity.

Domestically the mandatory B20 program that required a 20 percent mixture of biofuels, in this case, based on palm oil, in diesel fuel sold at home, has become the focus of a program to boost demand for palm oil in the country and at the same time to reduce fuel importin 2018.

Demand for palm oil to meet the B20 program is also expected to be able to improve the selling prices of oil palm fresh fruit bunches (FFBs) which have this year reached a low of Rp 500 per kilogram.

According to the Ministry of Energy and Mineral Resources, biodiesel consumption in Indonesia has risen by 5,.4 percent in 2017 compared to the previous year.

Meanwhile, national biodiesel production only managed to reach 3.49 million kiloliters in the first nine months of 2018 compared to the total target of 5,7 million kiloliters for the entire year of 2018.

Landscape Indonesia Director Agus Sari, said that the increase in biodiesel consumption can help improve palm oil prices. “The increasing use of biodiesel domestically will make its availability for export limited. This could improve CPO prices,” Sari told The Palm Scribe, referring to crude palm oil (CPO), the main product of the palm oil industry.

Sari also believed that the rise in consumption level is due more to the impacts of government regulations rather than pure market demand.

“The problem is, that if CPO prices rise, then the price of biodiesel will rise too and with the current quite low prices of diesel fuel, biodiesel can become more expensive. It would be strange to replace diesel with more expensive biodiesel,” he said.

Besides a market supply surplus, the weakening selling price of palm oil was also caused by the multitude of negative issues said to surround the palm oil industry.

One of these negative issues is the series of anti-palm oil reports coming out non-government organizations as well as other sides, within member countries of the European Unions.

Council of Palm Oil Industry Producing Countries (CPOPC) Executive Director Mahendra Siregar said that those negative statements were only normal. “This is because Europe does not have palm oil, of course, they want to prioritize the interest of the vegetable oil producers there,” he said.

In 2018, Indonesia also temporarily waived an export duty on palm oil and its derivative products in a bid to boost sales amid the low global prices.

The export levy which had been collected and used for the development of the country’s palm oil sector, including of its palm oil-based biodiesel industry, will be reimposed once prices of fresh fruit bunches reached $500 per ton again.

“This policy, as CPO prices are low, actually is disadvantaging many sides. This (export levy) is no longer applied in this situation until prices improve again,” said Darmin Nasution, the Coordinating Minister for the Economy.

Besides the replanting program for smallholders’ oil palm plantation, a moratorium on the expansion of oil palm plantation was also a major focus of the industry in Indonesia in 2018.

From the replanting program target that was initially set at 185,000 hectares, only 33,761 hectares had been met by early December. The replanting of smallholders’ plantation mostly stumbled on the problem of land tenure legality, farmers’ access to financing and also the availability of superior seedlings.

The three year-moratorium on the expansion of oil palm plantation that has been effective as of September 19, 2018, is hoped to be able to not only curb  expansion and also cut down national output which has been excessive but also to encourage a boost in productivity and better palm oil quality

Plantation Director General  Bambang Wahyu Dwiantoro deemed that the weak performance in the rejuvenation of smallholders’ oil palm plantation was due to the fact that many of the smallholders themselves did not yet want to replant their plantations. “ The problem at present is that the officials at the district and province levels are still busy educating the people because the people still do not deem it necessary for their productive plantations to be replanted,” he said,

2018 was indeed not a lucky year for the Indonesian palm oil industry and looking forward, the same challenges — overproduction, low prices, and the not yet effective implementation of the biodiesel program — remained.

“The CPO volume needed to supply biodiesel is really substantial, meanwhile there are no biodiesel refineries and there is no investor daring to invest in the large-scale biodiesel plant that is needed,” Sari said.

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