Uncertainty over Indonesia’s CPO reference price bewilders sellers

The market for Indonesian palm oil says that confusion reigns almost a week since Indonesia announced a reduction in its crude palm oil (CPO) reference price by 46% for August 1-15 to $872.27/mt, which would indicate a lowering of the corresponding export duty for CPO to $33/mt from the previous $288/mt based on the existing tax structure.

The news of the changes had sent Malaysian palm oil prices tumbling by over 5% as Indonesian palm oil exports became even more attractive and added pressure on competing producer Malaysia.

The reduction in the reference price, coupled with ongoing policies, was intended to boost its export volume as Indonesia tries to manage its domestic supply glut.

However, with no official regulation denoting the change issued so far, a lack of clarity has maintained the sense of bewilderment among sellers, with fewer movements of vessels as the market awaits more information. 

Reference price calculation

In addition to the announced reduction in reference price, the Indonesian trade ministry had issued a circular denoting a change in the method of calculation.

Previously, the CPO reference price was based on the average of prices on the Bursa Malaysia Derivatives Exchange, the Indonesia Commodities and Derivatives Exchange, and CPO CIF Rotterdam over a fixed period.

The revised method involves a weightage of 60-20-20 given to the average prices, should the difference in the three prices be less or equal to $40/mt.

It also changes the calculation to base them on an average of two sources – the median of the three sources and the price closest to the median – should the difference exceed $40/mt.

Market sources have also cited a lack of clarity over the revised method, pointing particularly to the period of reference as open to interpretation, thereby making it difficult to calculate the price.

Demurrage

Since the new reference price was announced, the market has been waiting for an official regulation to be issued, with talk ongoing that the government will revise the price and eventually export duty from to $52/mt, which is one tier higher based on the existing export tax structure.

An announcement is also expected in the coming days.

Meanwhile, sellers have been left confused as to the payable export duty, with more than one source sharing with Agricensus that Indonesian customs officers in different ports have been unable to cite a billable amount or quoting different amounts.

Some exporters have also resorted to using the previous export duty of $288/mt, with the expectation that a reimbursement will be made when the Indonesian government makes an official announcement, a process seen as excessively messy and drawn out.

Others have opted instead to have their vessels wait at ports while clarity is sought over the official export duty.

“Waiting is better until the official (price comes out) ...the sellers would rather pay for demurrage instead,” one regional broker told Agricensus.

Note: Agricensus had earlier reported that the Indonesia had cut its CPO reference price to $872.27/mt and that the export duty was reduced to $33/mt. However, upon further feedback and review we have corrected the article to include that no official regulation denoting the change was issued.