Domestic consumption to rise
March, 2016 in Biofuels, Issue 1 - 2016
This was designed to relieve pressure on the trade balance and government budget deficit, as it should lead to a decline in crude oil and fuel imports. Moreover, Indonesia is the world’s largest producer of crude palm oil (CPO).
The B15 programme was launched in April 2015, as the follow-up to the B10 programme. However, compliance has been low as biodiesel producers have had to wait for further regulations – such as the new biofuel index price and matters related to the new palm oil export levies used to finance the biodiesel programme. At the same time, state-owned energy company Pertamina ran out of FAME reserves.
As such, the B15 programme is still to see its full implementation. However, the government has already announced it is keen on launching the B20 programme in 2016, raising the mandatory amount of FAME to 20% in the blend.
Higher domestic consumption of palm oil should manage to boost global palm oil prices. After having plummeted to historic lows in 2015, prices have recovered on speculation that palm oil output will be curtailed due to the El Nino strike, floods from year-end monsoon rains and increased demand in Indonesia.
Currently, Malaysian palm oil futures are touching an 18-month high (around US$581 per tonne) and it is assumed that prices will rise gradually in 2016.
However, as global petroleum prices are expected to remain under the US$40 per barrel level in the foreseeable future, demand for palm oil will be curbed. Therefore, it is difficult for CPO to rise above US$650 per tonne.
Sahat Sinaga, Vice-Chairman of the DMSI, said palm oil consumption in Indonesia is to rise to 11.5 million tonnes in 2016. It is expected to absorb 7.1 million tonnes of CPO for food processing (from 6.9 million tonnes in 2015), with the remainder for the biodiesel programme (from an estimated 868,000 tonnes in 2015).
This would also imply that Indonesia is set to replace India as the world’s largest palm oil consumer. India is estimated to have consumed 7.2 million tonnes of palm oil in 2015.
Sinaga stated that, due to higher domestic consumption, Indonesia’s CPO exports will decline to 21 million tonnes in 2016. The 2015 CPO exports are estimated at 23 million tonnes in terms of volume or US$20 billion in terms of value.
The DMSI has also revised downward its prognosis for Indonesia’s palm oil production in 2016, to 30.8 million tonnes, from 31.5 million tonnes in 2015, due to El Nino-induced dry weather.
