Cool response seen to new Indonesia CPO contract
JAKARTA, June 22 (Reuters) - Indonesia is due to launch on Tuesday a physical crude palm oil contract, but low volumes and a lack of transparency will crimp the move to establish a new benchmark in the world's top producer, traders said.
The new contract on the Jakarta Futures Exchange will have to compete with entrenched Malaysian palm oil futures and CPO cash prices in Rotterdam, Europe's vegetable oils market.
'It would be great if we (Indonesia) had a benchmark price, but the exchange must prove itself first,' said Tjahyo Dwi Ariantono, an investor relations officer at Indonesia's biggest listed plantation firm PT Astra Agro Lestari Tbk.
Traders questioned whether Indonesia was ready to launch.
'As long as there is no transparency in Indonesia, such as on production volume, exports and imports, how can traders make an Indonesian price a benchmark?' asked a trader at a foreign trading house.
Unlike rival Malaysia, which regularly discloses monthly palm oil production, exports and closing stocks data, no industry or government bodies in Indonesia regularly provide such data.
A flow of transparent information on supply and demand is crucial to help investors read the direction of commodity prices.
Besides a lack of transparency, a lack of physical supply via the exchange is also seen as a major obstacle.
The state enterprises ministry has ordered state plantations to sell 500,000 tonnes of palm oil, or about 20 percent of their output a year, via the exchange, according to the exchange. But that only represents about 3 percent of Indonesia's total output.
For a graphic on Indonesian palm oil production and exports, please click:
http://graphics.thomsonreuters.com/059/ID_PLM0509.jpg
'Any market, whether it's a stock market or commodity market, is useful only if it's liquid,' said an analyst at a foreign brokerage, who also declined to be named.
Due to a reluctance among private firms, which account for about 85 percent of total output, to sell via the exchange, the only way to raise liquidity was with government help, he added.
The state plantations currently sell about 1 million tonnes, or 40 percent of their output, through a joint marketing centre in Jakarta, which acts as a single seller. They use prices from the centre as benchmark to sell the rest of their output.
The exchange's president said it would have to rely on government support to attract private producers.
'To create a benchmark price, the participation of private firms is a must. The question is how to bring them in? I think one way is by cutting the value added tax on palm oil,' President Hasan Zein Mahmud told Reuters.
The sale of crude palm oil is currently subject to a 10 percent value added tax.
Currently, only 15 firms, comprising 11 state firms as sellers and four processors as buyers, had been registered to trade CPO at the exchange, he said.
(Editing by Ed Davies and Clarence Fernandez)
The new contract on the Jakarta Futures Exchange will have to compete with entrenched Malaysian palm oil futures and CPO cash prices in Rotterdam, Europe's vegetable oils market.
'It would be great if we (Indonesia) had a benchmark price, but the exchange must prove itself first,' said Tjahyo Dwi Ariantono, an investor relations officer at Indonesia's biggest listed plantation firm PT Astra Agro Lestari Tbk.
Traders questioned whether Indonesia was ready to launch.
'As long as there is no transparency in Indonesia, such as on production volume, exports and imports, how can traders make an Indonesian price a benchmark?' asked a trader at a foreign trading house.
Unlike rival Malaysia, which regularly discloses monthly palm oil production, exports and closing stocks data, no industry or government bodies in Indonesia regularly provide such data.
A flow of transparent information on supply and demand is crucial to help investors read the direction of commodity prices.
Besides a lack of transparency, a lack of physical supply via the exchange is also seen as a major obstacle.
The state enterprises ministry has ordered state plantations to sell 500,000 tonnes of palm oil, or about 20 percent of their output a year, via the exchange, according to the exchange. But that only represents about 3 percent of Indonesia's total output.
For a graphic on Indonesian palm oil production and exports, please click:
http://graphics.thomsonreuters.com/059/ID_PLM0509.jpg
'Any market, whether it's a stock market or commodity market, is useful only if it's liquid,' said an analyst at a foreign brokerage, who also declined to be named.
Due to a reluctance among private firms, which account for about 85 percent of total output, to sell via the exchange, the only way to raise liquidity was with government help, he added.
The state plantations currently sell about 1 million tonnes, or 40 percent of their output, through a joint marketing centre in Jakarta, which acts as a single seller. They use prices from the centre as benchmark to sell the rest of their output.
The exchange's president said it would have to rely on government support to attract private producers.
'To create a benchmark price, the participation of private firms is a must. The question is how to bring them in? I think one way is by cutting the value added tax on palm oil,' President Hasan Zein Mahmud told Reuters.
The sale of crude palm oil is currently subject to a 10 percent value added tax.
Currently, only 15 firms, comprising 11 state firms as sellers and four processors as buyers, had been registered to trade CPO at the exchange, he said.
(Editing by Ed Davies and Clarence Fernandez)