Exports of CPO to miss target on lower demand

Indonesia will likely export 13 million tons of crude palm oil (CPO) this year, 1 million tons short of an earlier target, as the global economic downturn has reduced demand. 

The Association of Palm Oil Producers (Gapki) said Monday the export would likely drop further next year, also due to an estimated increase in domestic demand, according to Gapki chairman Akmaluddin Hasibuan. 

The global economic downturn, which has led to reduced demand, is being exacerbated by falling commodity prices, prompting many importers to cancel orders or seek price renegotiations, Akmaluddin said. 

According to Gapki, Indonesia, the world's largest CPO producer, is expected to produce 18.5 million tons of CPO this year and 19.5 million tons next year. 

The country benefited from windfall profits generated by a boom in primary commodity prices -- including palm oil -- starting from the middle of last year. 

During the January to July period of 2008, the price of CPO rose to between US$1,000 and $1,300 per ton. 

The boom, which began only four to five months ago, has reversed in line with the global financial crisis, with the commodity now fetching from $400 to $500 per ton. 

"We expect to see an average price of $518 a ton for CPO next year", Akmaluddin said. 

The governments of Indonesia and Malaysia -- the world's second-largest producer -- have agreed on a new replanting program covering a total of 300,000 hectares of plantations -- including 50,000 hectares in Indonesia -- starting next year to help cut short-term supply and stabilize the price of the commodity. 

The two nations expect the replanting effort to lift the price of CPO as the program will see Indonesia's output cut by 75,000 tons next year and Malaysia's by 500,000 to 600,000 tons. 

The replanting effort will see older low-yielding trees cut down and replaced with seedlings. 

Akmaluddin said he welcomed the plan, "Currently, more than a million hectares of oil palm plantations have very old plants." 

Most of the plantations are owned by small-scale or seasonal farmers. 

According to Gapki, up to 35 percent of the country's total 5 million hectares of palm oil plantations is owned by Indonesian small-scale or seasonal farmers. The remaining 65 percent is owned by private or state-owned companies. 

Akmaluddin said the replanting program would cost on average Rp 30 million per hectare of plantations. "The government may facilitate these small-scale farmers with credit or funds to help them replant their land." 

Derom Bangun, Gapki executive chairman, said private investment in replanting would be welcome as CPO was still a promising commodity. (hwa)

source: The Jakarta Post , Jakarta | Tue, 11/25/2008 11:26 AM | Business