WASHINGTON, Nov 5 (Reuters) - The U.S. Agriculture Department's attache inJakarta released the following report, dated October 31, on the palm oiloutlook for Indonesia.

A table from the report appears after the text.

Attache reports are not official USDA data.

Report Highlights:

Indonesia palm oil production is forecast to increase to 9.1 milliontons in MY01/02 and 9.5 in MY02/03. Exports are expected to reach 5.8million tons in MY01/02 (increased by 32 percent during October 01 - May02) and exceed 6 milliontons in MY02/03. Average domestic prices have been on the upswing drivenby international oil prices and the appreciation of Rupiah against the USdollar. Export tariffs and base prices for CPO and derivative productsremainsunchanged.

Production

FAS/Jakarta forecast of Crude Palm Oil (CPO) production during MY01/02(October-September) remains unchanged from Gain Report ID#2006 atapproximately 9.1 million metric tons (MMT) and 9.5 in MY02/03. Aggressiveinvestments over the past few years have resulted in a rapid expansion ofIndonesian palm oil production. Supply increased as the harvest startedlate last month and will continue until December. CPO production lastmonth reached peak volume incalendar year 2002, totaling 980,000 MT. Various palm oil industrycontacts estimates of production in MY02/03 range from 9.5 to 10.0 MMT. Onthe contrary, Indonesia's Palm Oil Association says this forecast is a bitoptimistic as theweather continues to be unfavorable, drought conditions in some parts ofIndonesia (primarily in Sumatra and Kalimantan), as well as haze may havea negative impact on palm trees, which could be seen 8 to 12 months later.Inaddition, the uncertainty over the security situation and increasing costof fertilizers are other factors that may negatively impact palm oilproduction in the future.

Post estimates a 5 percent growth in oleo chemical production inMY02/03, as investment in the oleo chemical industry remains strong and issupported by Government of Indonesia (GOI) policy of having low export taxpolicy on chemicalproducts.

Consumption

CPO is a raw material for the production of cooking oil. After asignificant growth in domestic cooking oil consumption from 2.5 MMT inMY99/00 to 3.0 MMT in MY00/01, the consumption of CPO during MY01/02 showsa slight increase to 3.10 MMT, and forecasts to reach 3.15 MMT in MY02/03,as economic stress continues. It is expected, domestic consumption willnaturally go up prior to Ramadhan and Christmas celebrations. Although CPOconsumption for oleo chemical industry is small compared to cooking oilindustry, the demand for Indonesian oleo chemical, margarine and soapproducts, have continued to rise with the moderate improvement inprocessing power. FAS/Jakarta has changed its industrial domesticconsumption for MY00/01 to 300,000 MT (refer to ID#2006), afterconsidering inputs from sources. Thus, total domestic consumption forMY01/02 has been estimated at 3.48 MMT and is forecast to increase to 3.55MMT in MY02/03. About 80 percent of palm oil consumption is accounted forby the cooking oil industry, 10 percent by the oleo chemical industry, 3.1percent by margarine, and the remainder by the soap and other industries.

Trade

Indonesian exports of palm oil are expected to increase in the comingyears, in concert with growth in palm oil production. During the firsteight months (October 2001 - May 2002) of MY 01/02, exports of palm oilincreased 32 percent,from 2.8 MMT (MY00/01) to 3.6 MMT. Industry sources predict that exportsof total palm oil will easily reach 6 MMT during calendar year 2002.However, future exports depend on the exchange rates and stable prices inthe international market. As a result, FAS/Jakarta has changed its exportforecast for MY01/02, from 5.3 MMT (refer to ID#2006) to 5.8 MMT.Currently, the export market is attractive for exporters, because of thehigh value of the US dollar against the Rupiah, as well as increasing CPOworld market price. India, Netherlands and China are Indonesia's majorimporters of CPO, totaling 932,000 MT, 633,000 MT and 245,000 MTrespectively during Oct 01- May 02 of MY01/02.

India's plan to increase import tax of vegetable oil, including CPO,has Indonesian CPO producers concerned. To protect Indonesia's domesticCPO industry, the GOI recently sent a letter to the Government of Indiarequesting that ahigher import tax not be applied to Indonesian CPO.

Stocks

With the increase of exports and domestic consumption, carry-overstocks during this MY01/02 will be dropped by about 200,000 tons to560,000 MT. The world market has expanded and absorbed Indonesia'sincreased supplies, and is expected to continue to absorb any additionalsupplies Indonesia may have in the future.

Prices

While domestic prices have fluctuated during MY01/02, overall priceshave been on the upswing. A weekly tender running by a joint marketingoffice for state owned plantations showed CPO prices ranging from Rp3,200/kg to 3,780/kg.The trend was driven primarily by international oil supplies and theappreciation of Rupiah against the US dollar. The short supply of palm oilfrom major growing areas due to poor weather conditions, is likely tocause an increase in domestic demand for CPO and eventually force pricesto increase.

Historically, as the CPO price increases on the international market,local producers concentrate on selling their product overseas market,which in turn, leads to a short domestic supply, and pushes up the priceof cooking oil.

Policy

For more than one year, export tariffs and export check prices(benchmark prices) for CPO and its derivatives products have remained thesame. [The export check price serves as the basis for the calculation ofexport tax owed for thedelivery of CPO at the time of submitting an export notification document.The check prices are reviewed monthly]. The export tariff for CPO and palmkernel is 3 percent and for Refined Bleached Deodorized (RBD) palm oil,RBD palm olein and crude olein the tariff is 1 percent. The export tax ispassed on to the buyers in the form of higher prices. Sources indicatedthat the GOI is paying attention to price developments, as the GOI maydecide to increase export taxes, if they deem it necessary to maintainsufficient domestic supply.

For further information, see the U.S. Department of Agriculture's ForeignAgricultural Service Web site athttp://www.fas.usda.gov/scriptsw/attacherep/default.asp.