March 3, 2023
JAKARTA – As the world’s biggest palm oil exporter, Indonesia plans to establish the country’s own crude palm oil (CPO) benchmark price by the end of this year, aiming to increase transparency in the commodity, the Futures Exchange Supervisory Board (Bappebti) said on Thursday.
Bappebti will first require CPO exports to go through futures exchange effective starting from June this year, said Didid Noordiatmoko, head of Bappebti. He hopes the process can allow regulators to conduct a price discovery after one or two months.
Price discovery refers to a process of finding out a proper price of a commodity needed for a marketplace to function, according to Investopedia.
“Why are we still relying on pricing data from Rotterdam and Malaysia? Our country supposedly can get more value in CPO trading,” he told industry groups during a discussion in Jakarta on Thursday.
“We need to make our own spot and futures market in the future,” he added.
Currently, most Indonesian palm oil exporters conduct sales directly with buyers without going through an exchange, while auctions held by state-run trading services company PT Kharisma Pemasaran Bersama Nusantara (KPBN) only offer physical palm oil and not futures contracts.
Refined palm products would be allowed to be exported directly, Didid said, but CPO shipments are supposed to be procured via an exchange.
Indonesia does not have its own reference price. So far, Indonesia refers to the three main benchmark prices: the Malaysia Derivatives Exchange (MDEX) in Malaysia, CIF Rotterdam in the Netherlands and the Indonesia Commodity and Derivatives Exchange (ICDX) in Indonesia.
Southeast Asia’s largest economy had long been looking to establish a price reference for CPO, as mandated by Law No. 32/1997 on commodity futures trading, but Didid said unreliable commodity transaction data in Indonesia remained a key hurdle of establishing one.
Authorities are still discussing the details of the policy, Didid said, including tax incentives and transaction costs for businesses.
“We have to consider other existing policies, such as the domestic market obligation [DMO], as well as the types of CPO that are required to be exported through an exchange,” he said.
“Then, we’re going to discuss how the exchange is going to facilitate the trade. Equally important is deciding how much we need to export, which requires the commodity balance for CPO to be finalized,” he added.
Industry groups said they would support policies to help Indonesia to set its own palm oil price reference, but urged the process to undergo a thorough preparation.
“The rules must be clear. There should not be additional costs, which could reduce the competitiveness of our palm oil,” said Eddy Martono, secretary-general of the Indonesia Palm Oil Association (GAPKI) told The Jakarta Post on Thursday.