Bright Prospects for Crude Palm Oil in 2017 as Biodiesel Props Up Demand
Nusa Dua. Crude palm oil prices may spike in the first quarter of next year before it normalizes after the mid-year harvest season with Indonesian biodiesel demand expected to prop up demand throughout the year.
Average crude palm oil prices are expected at between $680 and $690 per metric ton next year, up from an estimate of $670 per ton this year, the Indonesian Palm Oil Association (Gapki) said on Friday (25/11).
"In 2017, we estimate that it will increase in the first semester, with a decline in price in the second semester, after the harvest season," Gapki senior economist M. Fadhil Hasan said.
Commodity analyst Siegfried Falk estimates that the prices could go up to $800 per ton in the first quarter next year amid thin palm oil stocks and at a time when Indonesia starting its so-called B20 program, which is aimed at increasing the percentage of palm oil converted to biodiesel to 20 percent, from 15 percent this year. Crude palm oil traded at 3,004 ringgit ($676) per ton on Friday.
However, Falk expects prices to be at their lowest in the final quarter of 2017.
"We should have reached the point where production has more and less normalized in key producing countries, and by that time stocks should have recovered because this is a gradual process," Falk said.
Many analysts have attributed the price increase to the B20 program, with extra demand for biodiesel in both the domestic and international market.
"Next year the biodiesel mandate would be very important, because the production will be high, so we would need the extra demand created by the mandate," industry analyst Dorab Mistry told the Jakarta Globe. "But clearly, the mandate creates a demand for an extra 2 million tons, which helps the price."
Production Increase
Gapki said Indonesia palm oil production would recover next year to the normal rate last seen in 2015. The world's largest palm oil producer is expected to produce between 33.5 million and 34 million tons of palm oil, compared to 30 million tons this year.
"Indonesia has been experiencing wet a dry season this year, which is favorable for oil production; so we expect production to increase," Fadhil said.
Export prospects next year are optimistic, with between 23 million and 25 million tons going to international markets. Palm oil exports declined in 2016 with 23 million tons, compared to 26.4 million tons in 2015, due to a large portion going towards the government's biodiesel program.
Mistry says export demand for palm oil is not a big concern for Indonesia, despite declining demand from China and the European Union.
"India is expanding; and Pakistan is expanding […] it will compensate [for lost demand from the European Union and China]," he said.
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