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)