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Indonesia Palm Export Growth 'To Stay Weak', Despite Output Jump
Indonesia Palm Export Growth 'To Stay Weak', Despite Output Jump
22/03/2017 (AgriMoney.com) - US officials flagged stagnation in Indonesia's palm oil exports, with importers seeing better value in rival vegetable oils, even as production looks on track for strong growth, as a hangover from El Nino wears off.
The US Department of Agriculture's Indonesia bureau, in its first forecasts for palm oil output in the world's top producing country in 2017-18, pegged it at a record 36.5m tonnes, a rise of 2.5m tonnes year on year.
The improvement reflects expectations of a continued recovery in yields from levels undermined this season, and in particular in 2015-16, by dryness stemming from El Nino.
With rains seen by Indonesia weather agency BMKG as "normal" over the past six months, the bureau flagged industry talk that drought "effects" will diminish "until full production is reached in October", which sees the start of the 2017-18 marketing year.
The output forecast factors in a BMKG assessment rating as odds against the return this year of El Nino, which typically causes dryness in South East Asia.
Japan has rated at 40% the chance of El Nino emerging between spring and summer this year, with official Australian meteorologists putting the odds at 50% for some time in 2017.
Palm oil vs soyoil
However, despite the surge in Indonesian palm oil output, the bureau remained cautious over prospects for the country's exports of the vegetable oil, seeing them rise by a "slight" 500,000 tonnes to 25.5m tonnes.
That would keep them below the 25.96m-tonne record achieved in 2014-15, when output came in at 33.0m tonnes.
The bureau flagged a hangover from the buoyancy lent to palm oil prices from the drought, which had narrowed the discount to rival soyoil to $26 a tonne in calendar 2016.
"With crude palm oil prices approaching soyoil prices, some buyers made the switch to soyoil, thus diminishing crude palm oil export performance," the bureau said in a report.
Price spreads
The briefing added that "factors to watch in the coming year will be Indian, Chinese, and European [import] demand, as well as potential growth in Pakistan and Bangladesh".
In Rotterdam, in the key European import market, palm oil was on Tuesday priced at $745.00 a tonne for April, a $15.00-a-tonne discount to soyoil.
However, the discount for delivery further ahead showed a larger gap, of $85 a tonne for the last quarter of the year.
The USDA bureau forecast only a small part of Indonesia's raised palm oil surplus – that is production minus exports – being consumed in the domestic market, with most ending up in inventories, seen soaring 74% to 2.93m tonnes over 2017-18.
Slowdown ahead
The briefing also highlighted that conditions were in place for a decline in Indonesia's palm oil output growth ahead, with the rise in sowings for 2017-18 slowing to some 50,000 hectares, from a level of around 600,000 hectares a decade before.
The decline was attributed to factors including environmental constraints and disputes over land title between plantation groups and local peoples.
Sales of oil palm seed, including for replanting, slumped by 20% to 94m seeds in 2016.
Harvesting of oil palms typically occurs some three years after planting, with maximum yields reached between years seven and 18.
Trees are viewed as generally having a commercial lifespan of about 25 years.
The US Department of Agriculture's Indonesia bureau, in its first forecasts for palm oil output in the world's top producing country in 2017-18, pegged it at a record 36.5m tonnes, a rise of 2.5m tonnes year on year.
The improvement reflects expectations of a continued recovery in yields from levels undermined this season, and in particular in 2015-16, by dryness stemming from El Nino.
With rains seen by Indonesia weather agency BMKG as "normal" over the past six months, the bureau flagged industry talk that drought "effects" will diminish "until full production is reached in October", which sees the start of the 2017-18 marketing year.
The output forecast factors in a BMKG assessment rating as odds against the return this year of El Nino, which typically causes dryness in South East Asia.
Japan has rated at 40% the chance of El Nino emerging between spring and summer this year, with official Australian meteorologists putting the odds at 50% for some time in 2017.
Palm oil vs soyoil
However, despite the surge in Indonesian palm oil output, the bureau remained cautious over prospects for the country's exports of the vegetable oil, seeing them rise by a "slight" 500,000 tonnes to 25.5m tonnes.
That would keep them below the 25.96m-tonne record achieved in 2014-15, when output came in at 33.0m tonnes.
The bureau flagged a hangover from the buoyancy lent to palm oil prices from the drought, which had narrowed the discount to rival soyoil to $26 a tonne in calendar 2016.
"With crude palm oil prices approaching soyoil prices, some buyers made the switch to soyoil, thus diminishing crude palm oil export performance," the bureau said in a report.
Price spreads
The briefing added that "factors to watch in the coming year will be Indian, Chinese, and European [import] demand, as well as potential growth in Pakistan and Bangladesh".
In Rotterdam, in the key European import market, palm oil was on Tuesday priced at $745.00 a tonne for April, a $15.00-a-tonne discount to soyoil.
However, the discount for delivery further ahead showed a larger gap, of $85 a tonne for the last quarter of the year.
The USDA bureau forecast only a small part of Indonesia's raised palm oil surplus – that is production minus exports – being consumed in the domestic market, with most ending up in inventories, seen soaring 74% to 2.93m tonnes over 2017-18.
Slowdown ahead
The briefing also highlighted that conditions were in place for a decline in Indonesia's palm oil output growth ahead, with the rise in sowings for 2017-18 slowing to some 50,000 hectares, from a level of around 600,000 hectares a decade before.
The decline was attributed to factors including environmental constraints and disputes over land title between plantation groups and local peoples.
Sales of oil palm seed, including for replanting, slumped by 20% to 94m seeds in 2016.
Harvesting of oil palms typically occurs some three years after planting, with maximum yields reached between years seven and 18.
Trees are viewed as generally having a commercial lifespan of about 25 years.