Indonesia launches first crude palm oil futures exchange, trading to begin Oct 23
[JAKARTA] Indonesia launched its first crude palm oil (CPO) futures exchange on Friday (Oct 13), with the aim of influencing global palm oil prices and setting benchmarks similar to those in Kuala Lumpur and Rotterdam.
The Indonesia Commodity and Derivatives Exchange (ICDX) has been appointed as the exchange. Trading is set to begin on Oct 23, and the aim is for the market to establish a reference price by the first quarter of 2024, said Didid Noordiatmoko, the head of Bappebti, the country’s commodities futures regulator.
Speaking at the launch event, Didid said there are 18 CPO companies that are ready to trade via ICDX, adding that participation is entirely on a voluntary basis.
“With the establishment of this CPO exchange, it is hoped that Indonesia’s dream of having a fair, transparent, real-time CPO reference price can soon be realised,” he said.
Indonesia is the world’s largest producer and exporter of crude and refined palm oil.
Last year, the largest economy in South-east Asia produced 47 million tonnes of palm oil and exported over 58 per cent of its production, valued at US$30 billion, according to Statistics Indonesia. These exports contributed to 59 per cent of the country’s total global exports.
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Indonesia’s production for the whole of 2023 is expected to decline by 1 per cent from last year’s total due to weaker global prices, according to estimates by Indonesia’s Palm Oil Producer Association (Gapki).
Didid believes that the palm oil industry would help build the futures market over time, given the importance of the commodity on Indonesia’s economy.
Most Indonesian palm oil exporters currently conduct sales directly with buyers without going through an exchange, while auctions held by state trading company KPB Nusantara offer only physical palm oil, and not futures contracts.
On Friday, Indonesia’s Trade Minister Zulkifli Hasan said that the CPO exchange would likely improve the management of pricing, risk, and transparency in the palm oil market.
Having its own CPO benchmark pricing at some point would also enable the government to use local pricing as the sole reference for setting export duties.
He gave the assurance that the authorities would ensure a level playing field for buyers and sellers, with both sides having equal bargaining power.
Chiming in was Gapki chairman Eddy Martono, who said that exporters will be able to hedge their products when prices are favourable without having to rush their exports.
He encouraged the government to consider having more tax incentives to attract more participants to the CPO exchange. Currently, the government imposes a levy of US$33 per tonne and an export duty of US$85 per tonne.
Ibrahim Assuaibi, the director of local commodity broker Forexindo Futures, said the CPO Exchange would play a key role in enhancing transparency within Indonesia’s palm oil trade.
He cited how there have been numerous CPO exporters engaging in illicit exports, thereby evading tax payments and resulting in financial losses for the country.
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