Monday, 27 July 2009

Indonesia’s World’s Largest CPO Producer

Indonesia’s crude palm oil (Cpo) production has remained the largest in the world with closest competition being in Malaysia. To support the trading performance, mainly export, Indonesia ha concentrated on not only CPO but also derivative products thereof.

CPO industry is highly potential to grow in Indonesia thanks to the support of downstream industries, which produce derivative product, such as cooking oil, butter, fatty acid, fatty alcohol and glycerin. On the other hand, the downstream industry could utilize the momentum of the decrease in CPO price to absorb the excess of CPO supply in the country.
Besides driving up the export, the government also continues to increase the domestic market demand for CPO by means of, among others, developing bio-diesel and other downstream industries. The Government also has made regulation and agreement with national CPO industry to guarantee supply of CPO for the need of biodiesel industry.

Being the world’s CPO largest producer, Indonesia should become a player that determines the price in CPO industry. For the purpose, the government started to prepare infrastructure to support the increase in CPO production because inadequate infrastructure has caused buyers to dictate the price by using quotation in Rotterdam, heavily dependent on market price in Singapore.

Indonesia’s CPO production is predicted to double in three-five uears to come and Indonesia needs adequate infrastructure to become a key player in the trade of CPO. In order to anticipate the increase, technical ministries, such as the Ministry of Public Works, Ministry of Forestry and Ministry of Agriculture must cooperative to build synergy by means of preparing the transportation facilities, seaport and downstream industry.

The rising production is driven by the government’s policy to drive up the domestic demand through obligation to mix fuel with biodiesel as much as one percent in 2009 and five percent in 2010. The Domestic market demand for CPO, especially for food industry has reached 4.5 million tons. The demand is predicted to increase by 55.5% in 2010 due to the mandatory use of bio-diesel.

The policy would also drive up the growth of bio-diesel industry in Indonesia, which was once stagnant due to the surge in the price of CPO to US$1,250 per ton early last year. Some 70% of the country’s CPO production has been destined to the export. Following the increase in the international price of crude oil to US$100 per barrel, the global market demand for CPO also rose thus driving up the price to US$1,250 per ton.

However, the price of CPO decreased to beneath US$500 per ton after the International price of crude oil moved downward to US$50 per barrel. In a bid to reduce the dependence, the government strives to drive up the domestic market for CPO through biodiesel policy and the development of downstream CPO industry having high added value.

Export Down
After the government set the export duty on CPO at 3% on June 1, 2009, following the increase in the price of the CPO, US$780 per ton, parties started to worry about the decreasing export. In a bid to stabilizes the price, the government imposes not only value added tax but also export duty once the price exceeds US$700 per ton.
However, the government’s decision to increase the export duty is potential to make Indonesia’s CPO unable to compete with similar product from other competitors, such Malaysia, India and China … Data at the Indonesian Palm Oil Producers Association (GAPKI) show that Indonesia’s export volume of CPO reached 17.17 million tons last year and 5.57 million tons in the first four months of 2009. The main export destinations of Indonesian’s CPO were India , Europe, and China last year with the volumes 5.40 million tons, 2.88million tons and 1.70 million tons respectively.

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