04-05 Aug, 2016 - Yogyakarta, INDONESIA
Grand Aston Yogyakarta
Grand Aston Yogyakarta
According to a Fitch report, Crude Palm Oil prices are set to increase this year, as global demand holds up and output falls in Indonesia and Malaysia because of the dry weather conditions caused by El Nino. The expected pre-export tax and levy CPO price range is between $650/tonne and $700/tonne.
Malaysia’s output declined to an 18-month low of 1.04 million tonnes in February, while Indonesia also forecast a reduction in output this year – the first annual fall in production in at least 15 years.
As Indonesia’s domestic consumption is likely to increase substantially, this should bolster global prices because less CPO is available for export. The Indonesian government has raised palm oil content in biodiesel to 20% this year; the blending rate was 15% in 2015 and 10% before that. Last year, the government imposed a flat export levy of $50/tonne of CPO and $30/tonne of processed palm oil products. Should the government's reference price rise above $750/tonne, the levy will still apply, but the total amount an exporter pays will not exceed the applicable export tax. The export levy is meant to compensate for loss of export tax revenues, should the CPO reference price fall below USD750/tonne, and makes it more attractive for Indonesia-based CPO firms to cater to the domestic market.
Higher prices will benefit producers as they will result in higher operating cash flows and improve CPO firms' credit profiles. However, as CPO prices are dependent on both industry supply-demand dynamics and the global economic environment, a renewed or sustained downturn in crude oil prices would likely be a drag on CPO prices.
Learn more about the latest trends and outlook on Palm Oil prices from analyst David Ng at the 16th Asia Coatings Markets on 4-5 Aug in Bangkok.
