Shares of palm oil issuers impacted by CPO regulation

This article has been translated by PwC Indonesia as part of our Plantation News Highlights service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Bisnis Indonesia

 8 February 2023

By: Ana Noviani & lim F. Timorria

The snowballing changes to the Indonesian government’s palm oil business regulations have rolled over to the stock and commodity exchanges. Most shares of crude palm oil (CPO) issuers are advancing in the green area in line with the rebound in CPO futures price. 

The Coordinating Minister for Maritime and Investment Affairs Luhut Binsar Pandjaitan signalled the plan to change the domestic market obligation (DMO) for CPO amid fluctuating price and supply of Minyakita cooking oil at grassroots level. 

Through his official Instagram social media account @luhut.pandjaitan, Luhut said that a coordination meeting with government ministries/institutions and cooking oil producers which was held on Monday (6/2) agreed to increase the DMO portion to 50% towards the Eid 2023 season. 

Consequently, the government will deposit some of the export rights owned by exporters. The export portion that is withheld can only be executed by the cooking oil producers after the domestic situation returned to a favourable condition. 

The plan follows the change in the ratio between DMO and export rights of CPO from 1:8 to 1:6 earlier this year. The tightening of CPO exports this time is also a reminder of the government’s policy to stop exports of palm oil derivative products in April 2022 or ahead of Eid Al-Fitr last year. 

In response to Indonesia’s plan, the price of CPO futures on the Malaysia Exchange soared 2.86% to 3,961 ringgit per tonne on Tuesday (7/2). This strengthening continued the positive trend on Friday (3/2) when CPO rose 2.67% to 3,851 ringgit per tonne. 

However, CPO still saw a correction throughout the ongoing year of 2023. The vegetable oil commodity shrank 4.76% from 4,159 ringgit per tonne at the end of last year. 

From the perspective of commodity analysts, the spike in CPO price was triggered by the response of market players who were concerned that global supply would tighten due to Indonesia’s policy plan. 

“The latest measure would shift demand to Malaysia, which would be evident in increased shipments due to the limited supply of Indonesian CPO exports,” said Sathia Varqa, Senior Analyst at Palm Oil Analytics, as quoted by Bloomberg. 

Varqa added that Indonesia’s B35 biodiesel mandate is also projected to boost domestic consumption by around 1 million tonnes of CPO.

Traderindo.com Founder Wahyu Tribowo Laksono thinks that the impact of Indonesia’s policy plan on global CPO price movement tends to be limited.

The condition is affected by the price of crude oil that continues to weaken. He forecasts that CPO price will be at around 3,000-4,5000 ringgit per tonne throughout 2023. 

“The [price] trend of commodities, especially energy, is still weakening. Moreover, there is the global recession threat that burdens CPO price so that it struggles to increase,” he stated.

CPO futures contracts that are climbing up in the short term are energising the price movement of palm oil issuers’ shares on Indonesia Stock Exchange. Yesterday, the shares of PT Mahkota Group Tbk (MGRO) led the rise with an increase of 3.05% to Rp845.

Besides MGRO, BWPT’s shares increased by 3.03% to Rp68, ANJT by 1.41% to Rp720, PSGO by 1.32% to Rp154, as well as SSMS and TAPG that increased by 1.26% and 0.82% respectively on Tuesday (7/2).

On the contrary, the shares of Astra Group’s AALI and Salim Group’s LSIP were declining despite most sales of the two oil palm plantation issuers being oriented towards the domestic market. The shares of PT Sinar Mas Agro Resources & Technology Tbk (SMAR) that has half of its sales in the export market were stagnant at closing amid the plan to tighten CPO exports.

Phintraco Sekuritas Equity Research Analyst Alrich Paskalis has yet to comment on the impact and the prospect of palm oil issuers amid the newest policy. However, the increase in domestic demand has positively affected several companies.

This is reflected in the B30 implementation in 2021 that increased the revenue of CPO issuers year-on-year. He logged that SSMS’ revenue grew up to 29.72% in 2021, AALI by 29.32%, LSIP by 28.36%, and TAPG by 19.22%.

“The B35 mandate increases the biofuel content from CPO to 35%. This could trigger a demand growth potential that should be in line with the increase in plantation issuers’ revenue,” he stated.

The potential of increasing domestic consumption will positively affect almost all CPO issuers. In the last 4 years, Alrich noted that most palm oil issuers’ sales came from domestic revenue, such as in AALI, TAPG, SSMS, LSIP, and BWPT.

In their research, Korea Investment & Sekuritas Indonesia (KISI) analysts Nicholas Kevin Mulyono and Edward Tanuwijaya provided a neutral rating for the oil palm plantation sector. The rating reflects on the CPO forecast that will reach 4,000 ringgit in 2023 and 3,800 ringgit in 2024.

According to them, CPO price will be sustained by China’s import demand that is recovering and the normalisation of domestic CPO supply that is progressing faster. CPO production is expected to surge in the second half of 2023 after the impact of La Nina is over and plantation workers in Malaysia are sufficient.

In this sector, KISI favours the shares of SSMS, TAPG, and DSNG with a buy recommendation at a target price of Rp1,970, Rp900, and Rp880 per share respectively. Meanwhile, the shares of LSIP and AALI are advised to be on hold.

Oil palm plantation issuers are still waiting for the certainty of the regulation on the latest DMO policy. The same statement was made by the managements of PT Astra Agro Lestari Tbk (AALI) and PT Sawit Sumbermas Sarana Tbk (SSMS) 

“We cannot disclose further information and are still waiting for the regulation,” Astra Agro Lestari Communication and Investor Relations Manager Fenny Sofyan stated on Tuesday (7/2).

Echoing the statement, Sawit Sumbermas Sarana Corporate Secretary Swasti Kartikaningtyas mentioned that the latest regulation on CPO export would still be discussed within the company.

When contacted by Bisnis, Triputra Agro Persada Corporate Secretary Joni Tjeng said that the potential DMO increase would not significantly impact on the company’s performance in the first quarter of 2023. Until now, TAPG’s sales have been focused on fulfilling domestic needs.

“TAPG as an upstream player would not be impacted directly as all of TAPG’s sales are still in the domestic [market],” he said on Tuesday (7/2).

He reckoned that the policy had been decided by considering various aspects, including to guarantee the volume of palm oil at an affordable price approaching Ramadan and Eid when demand increases.