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Indonesia may curb exports of crude palm oil JAKARTA - Indonesia, the world's second largest palm oil grower, may curb unprocessed exports of the commodity to encourage the development of local refining, an official at the Trade Ministry said. Curbing overseas sales of crude palm oil (CPO) is among the options that will be discussed at a meeting on January 22, Agus Tjahyono, agricultural exports director, said in an interview yesterday. "There are lots of options besides taxes to discourage exports," Tjahyono said. "We can impose regulations."

Reducing supplies from the South-East Asian nation to the global market may sustain a rally in the price of the commodity, which competes with soyaoil. Benchmark palm oil futures gained 41 per cent last year on rising demand, especially from China. "The idea could be to find ways to encourage the downstream industry, including the biodiesel industry, and make sure there's enough feedstock," said Derom Bangun, head of the Indonesian Palm Oil Association, by telephone.

Downstream typically describes the processing parts of an industry that transform commodities into semi-finished or finished products. Palm oil for delivery in three months on the Malaysia Derivatives Exchange dropped RM25, or 1.3 per cent, to RM1,880 a tonne at 5:28pm Malaysian time.

Indonesia is poised to overtake Malaysia this year as the largest palm oil producer as more trees mature and yields improve. At present, most Indonesian palm oil is exported to Malaysia for refining into edible oils for cooking, and into oleins for use in soaps, detergents and industrial lubricants.

CPO prices have also surged amid growing demand for the oil as an additive to fossil fuels. High crude oil prices are spurring interest in biofuels projects as investors seek renewable energy. So- called green fuels extend the life of fossil fuels and reduce carbon emissions.

Both Malaysia and Indonesia, which together control almost 90 per cent of the world's palm oil production, last year introduced policies to encourage the use of palm oil products in fuels as crude oil prices reached records. Indonesia is seeking more investment in industries producing energy from palm oil, sugarcane and jatropha to help create 5 million jobs and cut state fuel subsidies, President Susilo Bambang Yudhoyono said last August.

PT Pertamina, Indonesia's state oil company, last year boosted biodiesel sales in Jakarta fourfold to cut the country's fuel imports. If exports are curbed, "this could result in the domestic crude palm oil price being lower than that of the international price", said UBS Securities analyst Andreas Bokkenheuser. The shift could boost the profitability of both the refining industry, and the emerging biodiesel industry, "whose economic viability has been questioned lately due to high crude palm oil prices and low oil prices", Bokkenheuser said.

Crude oil prices have dropped 31 per cent in six months to US$50.49 a barrel yesterday. Analysts broadly estimate that making biodiesel is viable when crude oil stays above US$50. Indonesia's biggest plantation companies are PT Astra Agro Lestari and PT Perusahaan Perkebunan London Sumatra, both of whose shares more than doubled last year.



Posted in Economy @ 20 January 2007 09:41 CET by Jeroen · 'Blog' RSS feed · permalink






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