Jokowi initially promised to issue the moratorium on April 2016, after months of forest fires and haze
By DASHVEENJIT KAUR / Pic By BLOOMBERG
New plantation players will be impacted by Indonesia’s recent action to review palm oil plantation licences as well as a three-year moratorium on the issuance of new permits, according to Public Investment Bank Bhd’s plantation analyst Chong Hoe Leong.
He said President Joko “Jokowi” Widodo’s move to sign a moratorium on new oil palm plantation permits last Wednesday would bring a big blow to plantation players who are relatively new or those with significant plantable landbank in Indonesia as their plantation expansion plans would be halted.
Jokowi initially promised to issue the moratorium on April 2016, after months of forest fires and haze, which affected Indonesia and neighbouring Malaysia and Singapore.
“The order is aimed at improving the sustainability of palm oil plantations and part of the environmental protections.
The instruction, which is set to remain in place for three years, applies to new and submitted requests, as well as those approved but have not yet include set boundaries and those inside natural forests.
“The government hope the temporary ban will improve productivity of small owners and also help clarify the land ownership,” Chong said in his report.
According to Chong, the three-year ban policy would temporarily help ease the rising pressures from environmentalists and European Union groups.
It would also slow down the Indonesian fruit fresh bunches production growth going forward, which helps provide support for palm oil prices and ease the oversupply concerns in the future.
Indonesia, which accounts for 51.7% of global palm oil production, is expected to see a rise of 5.5% year-on-year (YoY) to 38.5 million metric tonne this year.
“The moratorium is likely to bring down the average crude palm oil production growth from 2020 onward, which initially projected to grow at a mere 3%,” he said.
Chong however, noted that he sees no significant impact for the plantation companies under Public Investment Bank’s coverage, as a majority of them have almost fully planted their landbank in Indonesia.
According to the research arm, TSH Resources Bhd, which holds about 90% of plantation landbank in Indonesia, has already slowed down their new planting activities for the past several years to less than 500ha pa.
Its top pick Ta Ann Holdings Bhd, which has no exposure in Indonesia, is the only plantation company that is not affected by the policy.
Last week’s move, however, had dragged the palm oil prices down for five consecutive days — losses were recuperated yesterday.
The benchmark palm oil contract for December delivery on the Bursa Malaysia Derivatives Exchange was up 19 points at RM2,162 a tonne yesterday, after hitting a three-year low last Friday.
Trading volumes stood at 10,562 lots of 25 tonnes each.