Production:

Indonesian palm oil planting expansion continues to slow. Certified palm oil seed sales, a major indicator of planting intentions, dropped 21 percent in 2014, preceded by an 18 percent drop in 2013. While planting expansion remains positive, its slowdown is expected due to land disputes with locals in several large-scale plantations areas as well as the implementation of Indonesia's forest moratorium policy. As a result, Post sets 2015/16 area planted at 10.8 million hectares with 8.9 million harvested hectares.

Crude Palm Oil (CPO) production is expected to reach 35 MMT in MY 2015/16 based on expanded planted area and the maturation of existing plantations. 2014/15 remains at 33 MMT, based on less-than-optimal rainfall throughout 2014.

Consumption:

The Government of Indonesia (GOI) increased biodiesel subsidies in early February 2015 in response to falling petroleum prices. The subsidy moved up to Rp 4,000 (about 30 cents) a liter from Rp 1,500. Despite this intervention, industry sources have indicated that it is unlikely to spur growth to targeted levels. Industry sources note that although the subsidy rate has moved up considerably, petroleum prices are too low. Additionally, there is some doubt about the actual amount budgeted by Indonesia's House of Representatives (DPR). In theory, the subsidy budget risks being diverted to other DPR objectives. Sources did not specify a specific threat, but noted that this is a viable scenario which may reduce overall funding for the subsidy. Industry sources did indicate that blending capacity and infrastructure improved for 2015/16, supporting biodiesel's overall production and consumption prospects. As a result, Post sets 2015/16 industrial consumption at 4.4 MMT, slightly above 2014/15 consumption. Human consumption is set at 6.2 MMT, reflecting population growth and an expanding food manufacturing sector. Overall consumption will therefore grow to 10.92 MMT.

Over the course of 2015/16, Post will continue to monitor the progress of biodiesel consumption and the success of the subsidy program. One important development is the proposal to tie the subsidy to the CPO price instead of the Mean of Platts Singapore (MOPS) price. If this proposal is adopted, biodiesel blenders indicate that this could boost biodiesel production, subsidy budgets permitting.

Trade:

The second quarter of 2015/16 started off with reduced shipments compared to Q1. Initial estimates of January 2015 palm oil exports are around 1.8 MMT. Reductions in shipments are led by India, which has implemented tariffs on CPO. As a result, Indian imports fell just below 300,000 MT in January 2015, their lowest level since January 2014. Ample soybean supplies have softened Chinese demand for palm oil, with Chinese demand for soybean meal helping to fuel the demand for beans for crushing. Shipments to Pakistan and Bangladesh remain above last year's average, while shipments to the Middle East region were exactly on par with 2014's calendar year average. EU imports remain stable, generally unimpeded by trade policies that disfavor palm oil that linked to environmental issue.

Low petroleum prices, coupled with growing palm oil production, are creating ample supplies, implying that palm oil exports will continue to grow. Q1 started out strong, while Q2 appears to be slowing. Given that industrial consumption is not expected to increase significantly in 2015/16, additional supply could continue to place downward pressure on palm oil prices, further fueling exports. India's palm oil tariffs will also be an import factor. As a result of these factors, Post sets 2015/16 exports at 22.7 MMT, less than one percent higher than 2014/15 exports.

Stocks:

Indonesian palm oil stocks are poised to grow. Planting expansion continues with production hitting record levels, while the global supply situation is complimented by robust soybean stocks. Local consumption appears unlikely to keep pace with Indonesia's production capacity, implying that stocks will continue to grow. Post therefore sets the 2015/16 ending stock estimate at a record 3.574 MMT. Stocks are greatly dependent on the success of Indonesia's biofuel consumption, as well as the growth of global demand for vegetable oils. Stocks may also decline if Indonesia experiences extended dry weather, or violent weather that hinders oil palm pollination.

Production, Supply and Demand Data Statistic

Oil, Palm

2013/2014

2014/2015

2015/2016

Market Begin Year

Oct 2013

Oct 2014

Oct 2015

Indonesia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

0

10,325

0

10,640

0

10,800

Area Harvested

8,115

8,115

8,540

8,540

0

8,965

Trees

0

1,548,750

0

1,596,000

0

1,643,250

Beginning Stocks

1,758

1,758

1,768

2,014

0

2,194

Production

30,500

30,500

33,000

33,000

0

35,000

MY Imports

27

1

0

0

0

0

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

32,285

32,259

34,768

35,014

0

37,194

MY Exports

21,719

21,719

22,300

22,500

0

22,700

MY Exp. to EU

3,500

3,500

3,500

3,500

0

3,500

Industrial Dom. Cons.

3,400

3,000

4,700

4,000

0

4,400

Food Use Dom. Cons.

5,168

5,270

5,500

6,000

0

6,200

Feed Waste Dom. Cons.

230

256

320

320

0

320

Total Dom. Cons.

8,798

8,526

10,520

10,320

0

10,920

Ending Stocks

1,768

2,014

1,948

2,194

0

3,574

Total Distribution

32,285

32,259

34,768

35,014

0

37,194

CY Imports

40

1

0

0

0

0

CY Imp. from U.S.

0

0

0

0

0

0

CY Exports

21,500

21,500

23,000

22,000

0

0

CY Exp. to U.S.

50

400

50

0

0

0

TS=TD

0

0

0

0

0

0