Traders, producers believe cooking oil prices will fall

Traders, producers believe cooking oil prices will fall

JAKARTA (JP): Prices of cooking oil are likely to stabilize
this week as stocks of crude palm oil (CPO), the main raw
material in its production, are growing in the domestic markets,
traders and CPO producers have said.

Traders said at the weekend the government's recent increase
in the CPO export tax to 60 percent from 40 percent succeeded in
significantly increasing domestic stocks.

"This will help cut the price of cooking oil in the domestic
market, which have sharply fluctuated in the last several weeks,"
a dealer said.

He said the price would be more realistic thanks to the
government's effort to gradually reorganize the distribution
system of the oil, disrupted following unrest in May.

The trader said the strengthening of the rupiah in the last
several days, which was expected to continue at least for the
short term, would also contribute to stability of the price.

"If the rupiah continues gaining ground, selling CPO products
overseas will no longer be viable, given the high export tax of
the commodity."

The chairman of the Association of Indonesian Edible Oil
Industries (AIMMI), M. Nafis Daulay, said that he was also
optimistic the retail price would drop because of the better
performance of the rupiah.

"The strengthening rupiah, along with the higher export taxes,
will discourage CPO producers from exporting their products. It
will in turn cause a drop in the retail prices of cooking oil in
the domestic market," Nafis told The Jakarta Post from his home
in Medan.

He said a more robust rupiah would automatically lower prices
of CPO at home, which are usually based on international prices,

As a consequence, the CPO price would drop to below Rp 4,850
per kilogram from between Rp 4,850 and Rp 5,300 at present.

Selling CPO products overseas with a 60 percent export tax
would also be unattractive for producers.

"If we sell CPO overseas at $600 per ton minus an export tax
of 60 percent or $366, we only can get $244 per ton, or Rp 3,400
per kilogram at Rp 14,000 per U.S dollar. It will be more
profitable if we sell it at home," he said.

Nafis criticized the government's recent decision to reappoint
the State Logistics Agency (Bulog) to distribute cooking oil on
the domestic market, a measure which shut out state trading
companies PT Dharma Niaga and PT Pantja Niaga.

"Bulog lacks experience in distributing cooking oil in the
local market. In the past, it only sold cooking oil through its
market operation.

"In addition, we know Bulog has long been criticized for
inefficiency and nontransparent practices in distributing cooking
oil.

Private trading companies are more business oriented and they
have more experience in distributing cooking oil."

In May, the government ended Bulog's role in the distribution
of domestic cooking oil and appointed the state trading companies
in its place.

Under the new scheme which came into effect Friday, state
plantation companies will sell their CPO to private refineries
and Bulog will buy it at Rp 3,400 per kilogram, and then sell it
to retailers at Rp 3,900 per kilogram.

Bulog will buy cooking oil produced by private companies at
domestic prices, or import cooking oil at international prices if
domestic prices of cooking oil still exceeded Rp 4,000 per
kilogram this week, or if domestic supply was not sufficient to
meet local demand.

Any subsidies necessary in the procurement of CPO will be
financed by proceeds from the export tax on CPO and its by-
products.

Nafis said the price of cooking oil would reach the
government's reference level if the system went according to
plan, but was still skeptical of Bulog's capabilities.

"The cooking oil price will be stable not because of the
change in the distribution system but more on the fundamental
factors such as the strengthening rupiah."

After reaching about 15,000 to the dollar in the last several
weeks, the rupiah gained ground at the end of last week to hit
13,000 following the International Monetary Fund's approval of
the next tranche of its standby loan to Indonesia.

Money market analysts expect the currency will further
strengthen in coming weeks as more loan commitments are likely to
follow the IMF's show of confidence. (gis)