Commodity trade: CPO price projection, ready to heat up during the remainder of the year?

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 - Perdagangan komoditas: Proyeksi harga CPO, siap memanas di sisa tahun?

28 June 2023

By: Yustinus Andri DP

The price of crude palm oil (CPO) may increase in the second half of 2023. However, the increase will be controlled by several other factors. 

According to a survey report by Bloomberg, the CPO reference price in Malaysia will increase by 10% from the current level to 4,000 Malaysian ringgit per tonne, or around US$855 per tonne. This level is expected to be reached in the next six months. 

The survey was conducted on 30 people from various groups, such as traders, analysts, and officials of CPO plantation companies. The respondents were asked to estimate CPO price projections in the next six months. 

The factor of even greater weather disturbance is expected later this year with the start of El Nino. The El Nino phenomenon usually brings drier climate in Asia and rains with high intensity in South America. 

Moreover, several analysts estimated that CPO price could skyrocket if the effect of El Nino becomes more severe in several countries that produce this commodity. 

“CPO price could increase by around 20% during a moderate El Nino. However, if the El Nino effect is stronger, then the impact will certainly be much bigger,” said Head of Regional Plantation at RHB Investment Bank Hoe Lee Leng as cited from Bloomberg on Monday (26/6). 

In addition, another factor that could increase CPO price is the heating-up of conflict between Ukraine and Russia. The rebellion by Wagner mercenaries against the government of Vladimir Putin raised concerns about the political situation in Russia. 

This situation led investors to forecast a rise in crude oil price because Russia is one of the important players in the OPEC+ global oil producer group. On the other hand, the increasing political tension in Russia has the potential to disrupt the country’s supply of crude oil and gas. 

Rising crude oil price may increase the appeal of biodiesel, which can be made from CPO. In the meantime, the West Texas Intermediate (WTI) oil price tends to fluctuate and is traded close to US$69 per barrel. 

On the other hand, global CPO price sentiment could also be affected by the mandatory biodiesel policy adopted by Indonesia. 

As quoted by Reuters at the Energy Asia conference on Monday (26/6/2023), Energy and Mineral Resources Minister Arifin Tasrif said that, currently, Indonesia is still implementing a mandatory 35% CPO-based biodiesel blend or the B35. However, in the next few years, Indonesia will boost it by increasing the CPO blend for biodiesel to 40% or B40. 

“Currently, we are still adopting B35, only later will we prepare B40. When we think it is ready, we will launch it,” said Arifin. 

However, despite several factors that may raise CPO consumption and price, this commodity could be under pressure as well. Such pressure has affected competitor vegetable oil commodities, which include soybean oil, sunflower seed oil, and rapeseed oil. 

As reported recently, the price of soybean oil has increased in the last few days. This was caused by the drought that occurred in the United States. However, the potential negative effects of the drought may subside because rains with moderate intensity will occur in the next 14 days. 

Rabobank senior analyst Oscar Tjakra said that, without significant weather disruptions, the global soybean and rapeseed supply in 2023 and 2024 will be higher than in previous years. This situation is expected to help control the average global vegetable oil price and reduce the competitiveness of CPO. 

In addition, the relatively high supply of CPO production in Indonesia and Malaysia before El Nino hits is expected to prevent the price of this palm oil commodity from soaring too high.

Malaysia’s CPO production increased by 27% in May compared to the previous month. This is the highest figure in the last two years. Meanwhile, in Indonesia, production could increase by more than 30%. The projection was delivered by Anilkumar Bagani, Head of Research at the Mumbai-based Sunvin Group. 

“Higher palm oil production in the May-October period will ensure more abundant supply in Malaysia and Indonesia at around 6.5 million to 7 million tonnes. This will prevent price increases,” he said.

CPO reference price 

In Indonesia, the Trade Ministry has determined the CPO reference price that will take effect from 16-30 June 2023. 

In the Trade Minister Decree No.1040/2023 on the Reference Price of Crude Palm Oil Subject to Export Duty and Service Fees of the Public Service Agency for the Oil Palm Plantation Fund Management Agency (BPDPKS), the CPO reference price is set at US$723.45 per MT. 

“To set out the reference price of CPO subject to export duty and the BPDPKS public service agency service fees of US$723.45 per MT,” the regulation reads as quoted on Tuesday (27/6/2023). 

This reference price decreased by US$88.23 or 10.87% compared to the 1-15 June 2023 period at US$811.68 per MT. 

The Trade Ministry’s Director General of Foreign Trade Budi Santoso said that the CPO reference price currently has decreased from the threshold of US$680 per MT. 

Referring to Minister of Finance Regulation (PMK) No.39/PMK/0.10/2022 jo. No.123/PMK.010/2022, the government imposes CPO export duty of US$3 per MT and CPO export levy of US$65 per MT, as stipulated in PMK No.103/PMK.05/2022 jo. No. 154/PMK.05/2022. 

Budi said, the decline in the CPO reference price was triggered by several factors. These factors include, among other things, the slowing demand for palm oil globally due to increased supply and declining prices of vegetable oils, such as soybean oil, which has driven down palm oil export from Malaysia. 

In addition, they also include the weakening of the Malaysian Ringgit exchange rate against the US dollar, along with market concerns over increasing supply of global palm oil production from Indonesia and Malaysia. This new reference price became effective since 16 June 2023.