CPO STOCK ABUNDANCE STARTED TO HAVE IMPACT ON PRICE PRESSURES

During January 2014, prices of all vegetables oils were depressed because of the abundance of vegetable oil stocks in various producing countries. CPO stocks of Indonesia and Malaysia are still abundant due to increase of production at the end of last year. The rain that occurred recently has ended the dry season in Brazil and Paraguay. It is very beneficial to both countries so that soybean crop recorded an increase as expected.

According to FAO report, rapeseed stocks in Canada are also abundant due to slowing exports, followed by sunflower seed stocks in the Black Sea region which are also abundant. Stock abundance causes negative sentiment that led to world vegetable oil prices to weaken and depressed explained Executive Director of the Indonesian Palm oil Association (GAPKI), Fadhil Hasan.

Abundant vegetable oil stocks in the world have an impact on the decline in exports of CPO and its derivative products from Indonesia. In January 2014, total exports of CPO and its derivative products reached 1.57 million tons, down by 454.6 thousand tons or 22.5% from December 2013 at 2.02 million tons. The fall of exports of CPO and its derivative products from Indonesia was due to decrease of demand from major export destination countries, except the United States. Exports to India declined sharply by 54% from 568.3 thousand tons in December 2013 to 261.4 thousand tons, and the decrease occurred in CPO derivative products. The decline of exports to India is because the Indian government has implemented import tax hike for refined oil from 7.5% to 10%.

This is done protect the refinery industry in the country whose utility is currently below 40% of the total installed capacity. The significant decline in exports also happened in Pakistan. The decrease was recorded at approximately 41.6% of 116.2 thousand tons in December 2013 to 67.9 thousand tons in January 2013. The decline also happened in the European Union (EU) and China at 17% and 2%, respectively. The decline in exports was also affected by the enactment of anti-dumping duties by EU on biodiesel from Indonesia and Argentina. In Indonesia alone, mandatory biofuel has provided a good opportunity for the Indonesian CPO-based biodiesel industry to divert the biodiesel market to the domestic market.

When some major destination countries of Indonesian CPO exports reduce demand, the United States recorded an increase of demand for CPO and its derivative products by 6.7 thousand tons (22.5%) from 29.9 thousand tons in December 2013 to 36.6 thousand tons in January 2014.

Prices Started to be Depressed

In terms of price, the average price of CPO in January 2014 was under pressure and decreased approximately 5% from USD 909.6 per MT last December to USD 865 per MT. CPO prices did not all sharply due to the government’s mandatory program of biofuel (B-10) that has been effective since September last year so that CPO absorption as a mixing ingredient for diesel duel increases.

This February prices are expected to improve with CPO stocks in Malaysia and Indonesia that will begin to decrease. Until mid-February prices is recorded to move in the range of USD 860-925 per MT. CPO export duty in February is set by the government at 10.5% with an average reference price of CPO at USD 880.42 and export reference price (HPE) at USD 809 per MT. (E)

Business News - February 28, 2014