CPO price rise expected: Industry

Adianto P. Simamora, The Jakarta Post, Jakarta

Crude palm oil (CPO) prices are expected to rise between 10 percent and 15 percent in the remainder of the year due to a combination of lower output and the increase in demand, according to the Indonesian Palm Oil Producers Association (Gapki).

Association chairman Derom Bangun told The Jakarta Post on Monday that palm oil yields normally drop by ten percent in November and seven percent in December, while demands for the commodity will increase in the months ahead of the year-end festivities.

Bumper harvests for palm oil normally occur in September and October, according to Derom.

"Thus, the price increase is a normal thing to happen at the end of every year," Derom said.

Derom said the price of cooking oil will also increase at the same percentage in the coming months because of the increase in the CPO price.

Derom also said the CPO price on the international market had increased to between US$290 and $330 per ton over the past two weeks due to a rise in demand from India.

"This increase was due to the high demand from India ahead of the Hindu Dewali holiday as well as profit-taking action launched by Malaysian traders," he said.

The rise in CPO price on the international market usually results in an increase in the country's CPO exports. This will make local CPO stock drop and force cooking oil producers to raise the price of their products.

If this happens, the government normally raises CPO export tax to curb CPO exports and prevent a sharp increase in cooking oil, especially prior to major holidays, such as Ramadhan and Christmas.

Derom, however, expected the government to not raise export tax for CPO, citing that the current palm oil price was still very low compared to the pre-crisis price.

"This price hike will benefit local farmers," he said, adding that the current increase in the CPO price will provide chances for farmers to offset losses they had suffered during the low price over the past two years.

Indonesia, the world's second largest palm oil producer after Malaysia, has targeted to produce 7.2 million metric tons of palm oil this year, up from 6.5 million tons the previous year.

Malaysia, the world's biggest exporter and producer of palm oil, accounts for half of the world's supply with an annual output of 10.8 million tons.