Oil Prices Drop Again, North Sumatra Exports Impacted.

General Chairperson of the Indonesian Palm Oil Board (DMSI) Derom Bangun revealed that the price of crude oil is now a specter for the palm oil industry in Indonesia, especially North Sumatra, because it has the potential to cause significant pressure. "With that situation, the price of CPO will have difficulty rising," he said to MedanBisnis on Thursday (1/7).

According to him, the price of palm oil, which was originally expected to improve this year, could also slip downward with the global dynamic that is pressuring the price of oil. Many parties are still predicting that the price of palm oil will improve to around $700 in the second quarter of 2016 with the hope that the price of oil will rebound. However, the current condition makes palm oil businessmen somewhat pessimistic, at least.

In this matter, the Indonesian Palm Oil Board (DMSI) holds that the development of the global dynamic as mentioned above is causing the price of oil to tend to be below $35 per barrel. Along with this, the price of CPO will also not rise above $650 per ton. This depressed price of oil has resulted in the use of biodiesel derived from vegetable oils such as rapeseed and soybean oil decreasing in developed countries. As a consequence, these two types of vegetable oils will enter the food industry, which will itself pressure demand for palm oil.

This will certainly have a very negative impact on North Sumatra's export performance. The reason for this is that the export value of CPO alone makes up almost 50% of the total export value. The depressed demand for and price of CPO will definitely erode North Sumatra's total export value. The balance of trade will likely waver.

In addition to CPO, the performance of rubber exports will certainly also be disrupted by this global oil price. According to the Secretary of the Indonesian Rubber Companies Union (Gapkindo) for North Sumatra, Edy Irwansyah, the low price of crude oil will cause synthetic rubber production to be very cheap. "In that way, the price of synthetic rubber will be cheap on the market," he said.

As a consequence, demand for rubber will weaken and prices will sag more and more. In trade this week, the price of rubber actually reached a level of $1.1 per kg, continuing to experience a decline over the last several years.

Just as happens with palm oil, with the decline in demand for rubber, North Sumatra's export condition is increasingly threatened. The export value of rubber alone is almost 20% of North Sumatra's total export value. "A situation like this will certainly be very harmful to the businesspeople and rubber farmers in North Sumatra," he said.

Based on notes from the Central Statistics Agency (BPS), the export value of North Sumatra from January to November 2015 reached a figure of $7.08 billion. This figure is down about 18.50% compared to the same period the previous year, which recorded a value of $8.68 billion. The decline in the value of exports is triggered by the negative performance recorded by palm oil and rubber exports, which each experienced declines of 20.17% and 21.49%, respectively.

North Sumatra's economics observer, M. Ishak, revealed that the government and businesspeople must certainly seek a way to overcome this problem. One way that could be done is to increase domestic consumption.

The biodiesel mandate of 20% or B20 needs to really be implemented this year so that our domestic absorption of CPO can be maximized. In that way, the supply for the export market will experience a decline and the market will respond by increasing the price. "In that way, our economy will continue to develop without depending on the export market," he said.

A similar thing could also be done with rubber. Domestic absorption could be increased by using rubber in infrastructure projects. The downstream rubber industry also needs to be developed to increase its sales value.

This certainly will make revenue from the rubber sector higher even though the volume of exports is reduced. "At minimum, the price of rubber will be stable and could increase by the second half of this year," he asserted.

It should be noted that at the beginning of this year, Brent crude had already fallen more than 8%. The weakening Chinese economy, as the world's second largest consumer of oil, has triggered a decline in oil prices. This is because consumption from China is expected to decrease, while supply is abundant. Currently, the contract price of Brent crude has dropped $2.19 per barrel to $34.23 per barrel. Brent prices, at one point, had reached $34.13, or the lowest since July 2004.

Market players are worried about the condition of world geopolitics, such as North Korea's nuclear test. Meanwhile, the tense relations between Saudi Arabia and Iran are expected to have only a small impact on the global oil distribution network. (daniel pekuwali)

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