Bali. The Indonesian Palm Oil Association or Gapki has projected that palm oil prices would decline in 2023 amid forecasts of global economic recession. Palm oil production and consumption will also slightly drop next year. 

According to Gapki foreign affairs head Fadhil Hasan, global economic growth is a determinant of the price of palm oil. The sluggish economy will take a toll on the demand for vegetable oils, thus weakening palm oil prices.

"I predict the overall palm oil prices in 2023 will be lower than what we had this year. But by how much, I cannot give an exact estimate of [the overall price] next year," Fadhil told a press briefing at the 2022 Indonesian Palm Oil Conference (IPOC) in Bali on Friday.

The International Monetary Fund (IMF) has cut its global economic growth forecast for 2023 from 2.9 percent to 2.7 percent. Many experts have warned about a coming recession, although the severity will vary from country to country.

“I think the European Union will face a quite deep recession. As well as China, due to its zero Covid policy, and also the US. Fortunately, our exports mainly go to India, etc.,” Fadhil said.

At the 2022 IPOC kick-off, Gapki chairman Joko Supriyono said that the palm oil industry was “at the peak of its glory” in the first semester. Palm oil prices topped $1,800 per ton in March. “This is the highest price ever recorded in palm oil trading history,” Joko said.

Declining Production Growth
Gapki revealed production growth had been experiencing a downward trend since 2005. Palm oil even posted a negative growth of around -1.15 percent in the past three years. This is a huge decline from the 10.12 percent growth in 2005-2010.

Last year, palm oil production reached 51.6 million tons, of which, 46.9 million tons were crude palm oil (CPO). The remaining 4.4 million tons were palm kernel oil (PKO), Gapki data showed. Judging by the first semester, the overall production in 2022 would be down to 51.3 million tons, according to the association.

Stick to B30
Fadhil said that it would be best for the government to stick to B30 —a diesel fuel made of 30 percent palm oil biofuel— for now, or even next year, rather than increasing the blend rate to 40 percent. A B40 mandate could affect the domestic price of CPO, according to Fadhil.

“[Implementing B40] will have an impact on CPO domestic prices, and this will cause cooking oil prices to increase. I doubt the government wants this to happen. A B40 mandate will not necessarily result in optimum net social benefits. It is better to keep it at B30 because it has already given maximum net social benefits," he told reporters.

Gapki reported a shift in the composition of palm oil demand: from export-oriented to more domestic consumption due to the biofuel program. 

The government’s plan to adopt the B40 biodiesel blend rate next year would mean that an additional 3 million tons of CPO would be consumed domestically, Gapki revealed.