B30 BOOSTS PALM OIL COMPANY SHARES
05 November 2019
THE REJECTION of crude palm oil (CPO) exports to European countries has affected the decline in share prices in companies (CPO producers). Until trading on Friday, October 11, the agricultural stock sector index was in the red zone, down 13.67 percent to 1,350.60. This is in line with the shares of CPO producers which are also still declining.
CPO stocks will continue to be under pressure as the world CPO price has yet to show significant improvement. This is because the movement of CPO stocks is heavily influenced by international CPO prices.
As long as the policies of Indonesia's largest CPO export destination countries are not yet supportive, it will be difficult for CPO prices to rise. For example, India still imposes higher import duty rates than Malaysia for palm oil derivative products from Indonesia.
This has weakened competitiveness and reduced Indonesia's exports to India. It is estimated that until the end of the year CPO sector stocks will still be depressed. This is because sentiment from abroad is still so strong to suppress CPO prices. For example, the European Union's move to reduce demand for CPO from Indonesia by imposing policies that hinder Indonesia's CPO exports to the region.
Another factor is investor speculation over the possibility of a US-China trade war agreement. In fact, previously this trade war was an opportunity for Indonesia to export more CPO to the Bamboo Curtain country. Because CPO is a substitute for soybeans imported by China from the United States.
Based on data from the Indonesian Palm Oil Association (GAPKI) as of 2018, China became the third largest CPO export market with 4.4 million tons last year. It is behind CPO exports to Europe which reached 4.8 million tons and India at 6.7 million tons.
The decline in share prices of a number of CPO producing companies will increase again next year, when the implementation of the 30 percent vegetable oil or biodiesel blend program (B30) into diesel fuel (BBM) starts in January 2020.
The program is expected to absorb the oversupply of CPO, which will drive up its price. But even that has to wait for biodiesel to be implemented. If the implementation is slow and the absorption is not as expected, investors will have to wait until the demand for CPO increases again.
In the midst of many declines in the shares of palm oil producing companies, on the contrary, there are some shares of palm oil companies that have increased. “Yes, it's true. Our shares have increased,” said President Director of Mahkota Group (MGRO), Usli Sarsi, recently.
The increase in share value was driven by the government's policy to implement B30 next year. According to him, the implementation of B30 will increase the use of CPO in the country. Moreover, the government has been successful in implementing B20 this year.
Positively Welcomed
In addition to implementing B30, the government's move to postpone the palm oil export tax until next year is very helpful in increasing the company's profit income. The postponement of export levies on CPO products and their derivatives until January 1, 2020, was welcomed positively by palm oil business players.
“We welcome the postponement of the levy because it can reduce production costs, so that it can help increase the purchase price of fresh fruit bunches (FFB) at the level of farmers who are palm oil suppliers,” he said.
If the export tax is imposed at the beginning of the year, it will not have a big impact. Because B30 has been implemented so that there is more domestic absorption of CPO. With more domestic absorption, it is expected that CPO prices will be stronger and not influenced by importing countries.
With the implementation of B30, of the total CPO production in Indonesia of 47 million tons, only 65 percent is for export, while the rest is for domestic needs.
Although this year Indonesia has again experienced a very large land fire disaster, Usli is not too worried that it will have an impact on the decline in CPO exports. According to him, land fires are not solely due to the need for palm oil. If it is said that next year palm oil production will decline, it is not due to land fires, but because of the long dry season and farmers not giving enough fertilizer.
“This condition was the same in 2016, when there was a long drought and land fires. In the following year, palm oil production declined,” he said. The government must take firm policies and actions against the perpetrators of land burning, so that it does not happen again.
Indonesia as the world's largest CPO producer can be an economic powerhouse. The world needs sustainable energy to power vehicles, factories, electricity, and so on. So far, the use of fossil-based energy is not sustainable and contributes to environmental pollution.
While energy from the sun, water, air has limitations. Meanwhile, the use of nuclear energy poses a great risk if there is a leak. “We are very optimistic that CPO is considered sustainable and environmentally friendly energy,” said Usli.
Not all countries can grow oil palm, especially those with more than two seasons. While countries that have two seasons are also not all suitable for planting oil palm. Indonesia is a country that has a large land area for oil palm plants as sustainable energy. All countries will eventually need CPO to produce energy.
The great potential of CPO to become an energy source, Mahkota Group took a step by acquiring an oil palm company in South Sumatra with a value of IDR 120 billion. The addition of oil palm is expected to further strengthen CPO production not only for export needs, but also domestic needs. (fahrin malau)