Indonesia 2016 palm oil exports seen lower, first drop in 5 years

[KUALA LUMPUR] Indonesia will export less palm oil this year as it uses more of the commodity at home to blend into biodiesel, an industry group said on Tuesday, putting the country on track for its first drop in overseas sales of the tropical oil in five years.

The world's top producer and exporter of palm oil is seen shipping out 23-24 million tonnes of the edible oil this year, said Fadhil Hasan, executive director of the Indonesian Palm Oil Association (GAPKI), as much as 9 per cent below year-ago levels.

Lower Indonesian exports could further buoy benchmark palm oil futures that are currently near a three-week top of 2,495 ringgit (US$569.89) per tonne. Last year, prices rallied 10 per cent on biodiesel demand hopes and worries of damage to yields from dryness linked to an ongoing El Nino weather event. "Hopefully in 2016 (biodiesel consumption) will increase significantly," GAPKI's Hasan said at a palm oil economic review seminar in Kuala Lumpur.

While Indonesia's palm oil output this year will be higher than previously expected given signs the El Nino is easing and as new plantations come online, exports will be less than 2015 because of domestic market absorption, Mr Hasan added.

Indonesia's palm oil shipments have risen over the past few years, from 16.42 million tonnes in 2010/11 to 25.3 million tonnes last year, US Department of Agriculture data shows.

But the trend is likely to change this year with the country promoting the use of biodiesel to cut its oil import bill and mop up its crude palm oil (CPO) supplies. Last year, Indonesia increased biodiesel subsidies and the minimum bio content in diesel fuel to 15 per cent from 10 per cent.

Mr Hasan, however, cautioned that Indonesia's plan to raise its biodiesel mandate to 20 per cent, or B20, this year would be difficult due to a plunge in crude oil prices to their lowest since 2003 that makes palm oil less attractive for blending. "If crude oil prices continue to be like this, around US$30, this whole program of B20 in Indonesia (if implemented) will not be sustained," he said.

But Indonesia's CPO Fund Agency said the government was maintaining its B20 plans. "(The) B20 policy is unchanged yet, still ongoing," said the agency's director Dadan Kusdiana.

Market participants have been expecting higher Indonesian biodiesel mandates to drive up palm oil futures.

Prices of the tropical oil could climb to US$580 to US$600 per tonne in 2016, GAPKI's Mr Hasan said.

He pegged Indonesia's palm oil output at 35 million tonnes this year, versus 32.5 million tonnes in 2015. GAPKI had earlier forecast output at 33.5 million tonnes for 2016. "Apparently we see that the El Nino now is easing, as some parts of Indonesia are seeing rain," Mr Hasan said. "The expansion of Indonesian palm oil plantation in the last three to four years was big, around 500,000 hectares per year, so even if (production is) affected by El Nino, it will be compensated by new harvested crops."

REUTERS