Commodity pricing: Indonesia welcomes the establishment of CPO exchange

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Bisnis Indonesia - Pembentukan harga komoditas: Indonesia sambut kehadiran bursa CPO

21 September 2023

By: Artha Adventy

Jakarta - If everything runs smoothly, the Futures Exchange Operating Crude Palm Oil (CPO) Physical Market or the CPO Exchange will be launched by the Commodity Futures Trading Authority (CoFTRA) in early October, after it failed to launch in June. 

Head of the Commodity Futures Trading Training and Development Office (PBK) Tirta Karma Senjaya said that the launch of the CPO Exchange is currently being coordinated with the schedule of Trade Minister Zulkifli Hasan and is expected to take place in early October 2023. 

“It is being coordinated with the Trade Minister’s schedule. It is expected [to launch] in early October,” he told Bisnis on Wednesday (20/9). 

According to Tirta, there are commodity futures exchanges that have applied to become CPO physical market operator. However, he was reluctant to mention specifically who the operator of the futures exchange was. 

Currently, there are two futures exchanges in operation, namely PT Bursa Berjangka Jakarta (BBJ/JFX) and PT Bursa Komoditi dan Derivatif Indonesia (BKDI/ICDX). These two exchanges also trade CPO products and their derivatives. 

Meanwhile, the Commodity Futures Trading Authority Regulation No. 7/2023 states the requirements for a futures exchange that is eligible to become a CPO exchange operator, namely having a business license, having a trading, supervision, and reporting system to organise CPO physical market trade, and having mechanisms and means for resolving disputes. 

A CPO exchange operator must also have rules and regulations for the CPO physical market, have a CPO physical market committee, have a study of the condition of the CPO physical market, and have cooperation, agreements, commitments, and written statements with prospective buyers and sellers. 

CPO physical market trading on the futures exchange can only be held through a futures exchange that has obtained CoFTRA approval as a CPO Exchange. Purchase and sale transactions on the CPO physical market are carried out using electronic or online trading systems. 

The government claims that the establishment of the CPO Exchange and the CPO export policy through the futures exchange will support Indonesia in creating more independent, competitive, and transparent CPO prices. Thus far, Indonesian CPO trading still refers to prices abroad, such as those on the Malaysian and Rotterdam exchanges. 

Previously, Head of the North Sumatra Indonesian Palm Oil Association (IPOA) Timbas Ginting questioned the government’s reasons for establishing its own CPO Exchange as a reference for pricing even though, according to him, Indonesia already has a palm oil commodity exchange managed by PT Kharisma Pemasaran Bersama Nusantara (KPBN). 

He believes that the CPO market managed by KPBN so far has been good, as proven by the use of its prices as a reference for global media companies, Bloomberg and Reuters, in monitoring palm oil commodity prices. 

“KPBN has been operating the CPO exchange for palm oil industry players in Indonesia since 1968. So, its reputation is already excellent, it just needs to be strengthened,” said Timbas to Bisnis on Tuesday (19/9). 

He believes that developing the CPO exchange in Indonesia is important considering that Indonesia is the largest producer of palm oil in the world. Indonesia’s CPO production accounts for 59% of total world palm oil production, but the benchmark price for Indonesian CPO exports still refers to the Malaysian Exchange (MDEX) and the Rotterdam Exchange in the Netherlands. 

Statistics Indonesia (SI) noted that Indonesia produced 45.5 million tonnes of CPO in 2022. Malaysia only produced 19.3 million tonnes of palm oil per year or around 25% of the global production. SI data in 2022 also states that Indonesia exported 25.01 million tonnes of CPO and its derivative products. 

By having a commodity exchange, he said, Indonesia can establish and have its own price reference based on the existing demand and supply. Another advantage is that the existence of a CPO exchange can also influence the purchase price of fresh fruit bunches (FFB) from farmers. 

In line with the plan to launch the CPO exchange, the Oil Palm Plantation Fund Management Agency (BPDPKS) continues to introduce the exchange to various stakeholders. 

Head of the BPDPKS Company Division Achmad Maulizal Sutawijaya said that the CPO exchange is being disseminated to farmers, large private companies, and importers. 

Dissemination of the CPO exchange has become one of BPDPKS programmes this year to ensure the smooth course of CPO trading on the futures exchange. 

“So, it is not just infrastructure preparation, but there must be recognition from the external market that Indonesia has a CPO exchange,” said Achmad recently. 

He said that CoFTRA has carried out reconciliation several times with foreign exchanges, such as in the United States and Malaysia. “The implementation will take at least a year or, if possible, 1.5–2 years. If we want to start now, that would be a good sign,” he said.

Market prices

As reported by Antara, Segara Research Institute Executive Director Piter Abdullah Redjalam recently stated that CPO export via the Indonesian futures exchange must be voluntary, not physical, and not linked to domestic market obligation (DMO). 

“Therefore, the regulation of crude palm oil export through the Indonesian futures exchange should not interfere with the market,” he said. 

Thus, the prices formed on the exchange will fully reflect the market prices arising from supply and demand. In this way, the exchange will gain credibility and can be used as a global market reference. 

The establishment of the CPO exchange is often linked to Indonesia’s efforts to face the European Union Deforestation-Free Regulation (EUDR), also known as the European Anti-Deforestation Law, which hampers the progress of palm oil trade. 

Previously, Head of the Research Team at the Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI) Eugenia Mardanugraha said that Indonesia must build a well-established palm oil financial market that supports the business climate of the industry to overcome the European Union. 

“If all palm oil traders [make transactions] on the Indonesian exchange, that means the profit from palm oil trading services can be fully enjoyed by Indonesia,” said Eugenia. 

According to her, the EUDR policy that prevents the import of agricultural and forest products linked to illegal deforestation is merely a European ploy to hamper the progress of Indonesian industries, including the palm oil industry. 

Moreover, the future of the Indonesian palm oil industry is determined by those who control international palm oil prices. The more advanced the Indonesian CPO financial market or exchange becomes, the less power Europe has to control prices. (Afiffah Rahmah Nurdifa/k68)