MUMBAI (Commoditiescontrol) - If you are a crude palm oil trader/planter, the Indonesian government's decision is a welcome move, for it might help drive up the prices of the commodity. In the recent past, crude palm oil prices have witnessed choppy trend suffering from weak fundamentals at one hand and the fears of El-Nino impacting plantation due to which the output is pegged lower this season, helping the cause.
Prices have recovered after falling below 2,000 Malaysian Ringgit in early August this year. Since then the prices have charted recovery path, however, the ride up is not confident. Planters have been demanding support from the government to protect their interest in the wake of falling prices as well as sluggish global demand. Further, the bumper crop of soybean in the Latin America has dented the recovery prospects.
It is in the wake of current uncertainty covering the palm oil trade that the economy is feeling the pinch of low exports.
In order to resurrect the economic condition, the Indonesian government decided to allocate 1.86 million kilolitre towards domestic bio-diesel consumption, reports from an official at President Director of Indonesia's Estate Crop Fund Agency confirmed. Reports also added that the government is also in talks to increase the floor limit of bio content in diesel fuel transport.
This move augurs well for palm planters, which would not only guarantees of confirmed demand but also ensures better returns.
This is a multi-pronged strategy, that the government has devised to reinforce confidence into palm trade.
Earlier last month, the Indonesian state-owned oil and gas company Pertamina phased out plans to stop the import of gasoil over the period of 2016-18, following expectations over slowing demand. The authority has also drafted to increase the production of biodiesel significantly by 20 per cent over the next year.
Projected demand for gasoil is about to fall by 14 per cent in the year ahead; and this will leave room for biodiesel demand to get a boost, Pertamina executive said on last Thursday. Further, Crude palm oil will also see prices rise in the near term.
CPO is used in the mixing to form biodiesel; hence, increased demand for CPO will certainly push prices up, allowing adulteration to step in. This will, in turn, create a price difference between bio-fuel and mineral fuel.
Now that the B20 mandate succeeded, the country can look to export 600,000 barrels a month of gasoil next year. According to top officials, this trend will be continued until 2019, after which the country might again step into imports.
The market for edible veg oils is also expected to see a rising trend, following increased adulteration in the face of limited CPO stock.
Earlier this year, the government stepped up to revise its biodiesel mandate to 15 per cent from 10 per cent in an attempt to help the economy in the face of the Rupiah's plunge against the US Dollar.
(By Commoditiescontrol Bureau; +91-22-40015523)
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