EU Policy Enactment Boosts CPOTR Prices

Price movements of CPOTR increased by 1.94% in a week to the level of IDR 13,160/Kg. Price movement sentiments include optimism over the opening of China's territory which will boost China's state economy and European Union deforestation regulations.

The Chinese government's move to loosen the zero covid-19 policy becomes good news for the economic recovery of China in 2023, with the lifting of regional restrictions it will encourage the mobility of the Chinese people. China is one of the countries with the largest consumption of CPO in the world. When the economy improves, the potential demand for vegetable oil will increase and the price will be pushed up.

The European Union agreed on a deforestation-free supply chain regulation in December 2022. There are 6 land-based commodities that are threatened with being banned from entering the European Union (EU), namely coffee, beef, soybeans, cocoa, rubber, and several palm oil derivatives. This regulation prohibits the sale of plantation commodities which are considered to be the cause of deforestation that occurs due to plantation operations. The law would require companies to produce a due diligence statement demonstrating that their supply chain has not contributed to forest destruction before they sell goods to the European Union. In response to this, Malaysia previously threatened to stop CPO exports to the European Union (EU) as a form of protest against the region's discrimination against commodities. The main export countries for Malaysia and Indonesia are India and China, meanwhile the EU imports Malaysian and Indonesian palm oil in much lower quantities. This could push up CPO prices further if Malaysia and Indonesia can shift their European stocks to fulfillment for China and India on global CPO.

Market View

Indonesia Biodiesel 35 Mandatory

The Coordinating Minister for the Economy Airlangga Hartarto (31/1) said that Indonesia would become a benchmark in the 35% biodiesel blending program (B35). Compared with worldwide mandatory biodiesel, Indonesia is a country with a consistent level of blending in the last 7 years. The implementation of the B35 policy is expected to save US$ 10.75 billion in foreign exchange, increase the added value of downstream palm oil by IDR 16.76 trillion, and this policy will reduce greenhouse gas emissions by 34.9 million tons of CO2. Biodiesel 35 is a mixture of 35% palm oil and 65% diesel fuel, this policy is expected to absorb higher domestic consumption and also responds to restrictions on demand for palm oil by the European Union with its latest law on deforestation

The government lowered the reference price for palm oil products for the determination of export duties (BK) and the rates of the Public Service Agency for the Palm Oil Plantation Fund Management Agency (BLU BPD-PKS rates) or export levies (PE) for the period 1-15 February 2023 is 879.31/ US dollar MT. This value decreased by US$41.26 or 4.48 percent from the period January 16-31 2023, which was US$920.57/MT.

WEEKLY ECONOMIC DATA & EVENTS CALENDAR

Date	Data/Events	Actual	Expectation	Previous
30-January	MY - PPI YoY DEC	3.5%	3.0%	3.2%
31-January	MY - M3 Money Supply YoY DEC	4.3%	-	4.4%
1-February	MY - S&P Global Manufacturing PMI JAN	-	0.5%	0.6%
1-February	US - ISM Manufacturing PMI JAN	-	48	48.4
1-February	US - JOLTs Job Openings DEC	-	9.5M	10.458M
2-February	US - Fed Interest Rate Decision	-	4.75%	4.5%
3-February	US - Unemployment Rate JAN	-	3.6%	3.5%
3-February	US - Non Farm Payrolls JAN	-	190K	223K

Source: ICDX Research