Indonesia’s palm oil exports to China have plummeted by half in volume amid global uncertainties, an industry source has said.
The Indonesian Palm Oil Producers Association (GAPKI) said in a statement on Tuesday that China’s export volume fell by 381,000 tons or 57 percent. This contributed to the sharp drop in the country’s total palm oil exports, which declined by 35.6 percent to 2.39 million tons in January from 3.72 million tons in December 2019.
“The drastic export decline in January could be because importing countries were still holding on to their stock while waiting for the Indonesia government to implement a 30 percent blended biodiesel [B30] program,” the association said in the statement.
Should the decline continue, overall export performances could be dragged down in 2020 as palm oil has remained the country’s top export. The palm oil industry is one of Indonesia’s major foreign exchange earners, contributing 13.5 percent to total non-oil and gas exports worth US$22.3 billion, Finance Minister Sri Mulyani said on March 2.
A decline in palm oil exports to China will also hit the industry hard as one of the country’s main buyers of the commodity. In 2019, China imported 6 million tons of palm oil from Indonesia, representing 16.5 percent of overall palm oil exports during the year, GAPKI data showed.
But China is not the only destination that saw a decline in palm oil exports in January. Palm oil exports to the European Union fell by 188,000 tons (30 percent), 141,000 tons (22 percent) for India and 129,000 tons for the United States (64 percent). Only Bangladesh saw a month-to-month increase by 52 percent to 40,000 tons in January.
The novel coronavirus, which emerged in China in late December 2019, could further lower the country’s crude palm oil (CPO) imports from Indonesia, as most of the country’s industries, including food and beverage producers, were closed for months.
However, CPO CIF Rotterdam prices rose in January, as CPO prices increased to an average of US$830 per ton from an average of $787 tons in December last year. CPO production also increased to 3.48 million tons in January from 3.45 million tons in the previous month.
“We hope that such good prices will motivate farmers and companies to take better care of their plantations in order to achieve higher productivity,” GAPKI wrote in the statement.
Outside of CPO, palm oil kernel (PKO) and palm oil-based biodiesel exports also declined while palm oil oleochemicals exports rose by 22.9 percent, GAPKI data showed.
Despite the export slowdown, domestic palm oil consumption increased slightly to 1.47 million tons in January from 1.45 million tons in December 2019.
The increase is in line with President Joko “Jokowi” Widodo’s policy to increase the mandatory use of 20 percent blended biodiesel (B20) and B30, which was made in response to the EU’s palm oil restrictions.
The domestic market is expected to absorb 9 million tons of CPO a year once the B20 and B30 policies are both implemented.
Jokowi had previously asked stakeholders to increase the mandatory use of CPO–based biodiesel from B20 to B30 by January and to 50 percent (B50) by the end of 2020.
The association painted a bleak picture of the industry going forward. The unstable petroleum prices as a result of disagreements between Russia and the Organization of Petroleum Exporting Countries (OPEC) coupled with the COVID-19 pandemic will contribute to the global economic slowdown, pushing down demand for imported vegetable oils.
It also expressed worries that vegetable oil prices would fall if the outbreak lasted until Idul Fitri. Experts have predicted that COVID-19 will peak in May or June. On top of that, industries will soon face the drought season, when forest and land fires are rampant.