Plantations Sector Outlook

Biodiesel program to support CPO demand

Positive catalyst for CPO may come from biodiesel, which Pertamina has agreed to buy 339 million liters of CPO from distributor AKR Corporindo between Aug. 17 and Oct. 31 and another 426 mn liters for the period through the rest of the year. We believe the contract should carry over for next year. Government will impose fine (penalty) of Rp 6,000/liter for Pertamina and AKR Corporindo if biodiesel quota missed, according to Energy and Resources Minister.

Modest jump in CPO price

We do not expect a mega rally in CPO prices given its significant large premium to Brent oil while current price only provides small discount vs. soybean oil. Despite we believe the rally is still going on, we concern that any rally could be partially held back by price relationship with soybean oil and crude oil. We also foresee tighter competition landscape in the industry post Brazil depreciation currency, favoring soybean against CPO. Malaysian CPO may become more competitive in the international market than Indonesian CPO.

India’s deficit on commodity may offset recent import duty increase

India increased taxes on overseas purchases of palm and soybean oils as a slump in global prices triggered record imports. The duty on crude palm and soybean oils were raised to 12.5% from 7.5% while the tariff on refined oils was increased to 20% from 15%. We see Asian Development Bank’s recent cut in India’s GDP growth for 2016 from 8.2% to 7.8% may not deter CPO import’s need substantially due to large soft commodities deficit.