Auctioned CPO nets low prices, slow demand due to glut: KPB

Auctioned CPO nets low prices, slow demand due to glut: KPB

JAKARTA (JP): The government-sponsored Joint Marketing Office
(KPB) for farm products only sold 8,000 tons of the 19,500 tons
of crude palm oil (CPO) put on auction on Tuesday.

The CPO came from state-owned plantation companies PT
Perkebunan Nusantara (PTPN) I to XIV.

The head of KPB's Palm Oil Marketing Center, Adi Kuncoro, said
the results of the auction showed the stock of CPO on the
domestic market was abundant.

The agency sold 8,000 tons of CPO to PT Bukit Kapur Reksa at a
price of Rp 1,820 per kilogram. The CPO sold was produced by PTPN
III and PTPN V, which operate in North Sumatra and Riau,
respectively.

"The price is still considered too low even though it is the
highest price we could get from today's auction," he said.

He added the price was Rp 120 per kilogram higher than that
fetched by CPO produced by private plantations, which sells at Rp
1,700 per kilogram.

"Considering the sluggish demand for CPO both on the domestic
and international markets, this selling price is normal," he
said.

He said 30 private companies participated in the auction, and
the bid by PT Bukit Kapur Reksa was accepted because the company
offered the highest price.

Most of the participants submitted bids below Rp 1,800 per
kilogram, he said.

CPO prices on the world and domestic markets have showed a
steady decline over the past six months due to oversupply
resulting from a production boom in several CPO producing
countries, and the substitution of cheaper edible oils, such as
soybean oil and canola oil, for CPO.

The decline in domestic prices is also the result of the high
export tax imposed on CPO and its by-products and reduced
consumption of CPO, which have led to a glut of the product on
the market. Lower CPO prices have also cut the prices of oil palm
kernel produced by farmers.

Adi said at Rp 1,820 per kilogram for CPO, farmers would
receive Rp 360 per kilogram for their oil palm kernel.

The price of oil palm kernel on the domestic market fell from
its precrisis level of Rp 700 per kilogram to its current price
of Rp 300 per kilogram. Farmers' production cost is Rp 243 per
kilogram of CPO produced.

CPO was quoted at US$385 per ton in Rotterdam and $320 per ton
in Kuala Lumpur, a steep decline from its price of $600 per ton
six months ago.

Traders said CPO prices would continue to decline in the
coming months with the peak harvest for oil palm due in September
and the increasingly popular use of soybean oil. An increased
amount of soybean oil on the market could push palm oil prices
even lower, they said. Palm oil prices have already fallen by
nearly 50 percent over the past six months.

A deputy to the state minister of the empowerment of state
enterprises, Sofyan A. Djalil, said the government believed the
CPO's selling price at the auction could become a benchmark price
for future CPO trading.

"Indonesia is the world's second largest producer of CPO. We
could determine international prices," he said.

He also said it was possible that the selling price at the
auction could become a benchmark price because PTPN's production
reached some 1.9 million tons per year, about 29 percent of the
country's total annual production of CPO.

Sofyan said the government expected KPB to hold a CPO auction
every week.

He said the auction could be opened to private plantations who
wished to sell their CPO through a tender process.

Adi said PTPN currently has a stock of 160,000 tons of CPO,
but he does not expect it all to be auctioned off.

Indonesia slapped an export tax on CPO and its derivatives
after the rupiah crashed at the onset of the financial crisis,
making overseas markets more profitable than the domestic market
and leading to a domestic shortage of cooking oil.

The export tax was lowered to 30 percent in early June from 40
percent in February. (gis)