The prices of coal and crude palm oil (CPO) have been highlighted at the beginning of 2024. These two commodities have experienced different movements in the global market. Coal has rebounded after weakening for two consecutive days, while CPO has been strengthening for seven consecutive days.
What causes this phenomenon? What are the impacts on the Indonesian economy, which is one of the largest producers and exporters of these commodities? Here’s the complete overview.
Coal: Rebound Thanks to China’s Imports According to Bloomberg data at the close of last week’s trading (12/1/2024), the January 2024 futures contract for coal on ICE Newcastle closed up 0.08% or 0.10 points at US$130.85 per metric ton. However, over the week, this contract has weakened by -0.53%.
Furthermore, the February 2024 delivery contract also increased by 0.79% or 1 point to US$127.25 per metric ton.
One of the factors driving the rebound in coal prices is China’s record-high imports in December 2023, with a year-on-year increase of 61.8%, reaching the highest level in 2023.
China imported 47.3 metric tons of coal in December 2023, up 9.7% from the previous month, as buyers stockpiled supplies ahead of the Chinese New Year holiday, which began on February 10, 2024.
Record-breaking cold temperatures in many regions of China also increased the demand for coal. This led to imports in 2023 setting a record at 474.42 million tons, exceeding analysts’ expectations of 460 million to 470 million tons for the entire year.
However, the rebound in coal prices is expected to be short-lived. In December 2023, China also reintroduced import tariffs on coal ranging from 3% to 6% for countries without bilateral free trade agreements.
Moreover, some analysts believe that imports this year could decrease from last year’s record high if the growth in renewable electricity generation continues to meet most of the growth in electricity demand.
CPO: Green Due to India’s Demand Meanwhile, the price of crude palm oil (CPO) continues to show a positive trend. The CPO price on the Malaysian derivatives exchange in February 2024 increased by 57 points to 3,831 ringgit per metric ton. Over the week, this contract has strengthened by about 4.24%.
Furthermore, the March 2024 contract increased by 60 points to 3,854 ringgit per metric ton, and has strengthened by about 4.73%.
The main factor boosting CPO prices is the increased demand from India. India is the world’s largest CPO importer, consuming about 10 million tons of CPO annually.
According to data from the Solvent Extractors’ Association of India (SEA), India’s CPO imports in December 2023 increased by 11% to 1.02 million tons compared to November 2023. India’s CPO imports in 2023 reached 9.3 million tons, up 64% from 2022.
The demand for CPO in India is predicted to continue rising in 2024, along with economic recovery and increased household consumption. Additionally, India has also implemented lower import duties for CPO from ASEAN countries, including Indonesia and Malaysia.
Thus, CPO prices are expected to remain high in the range of 3,500-4,000 ringgit per metric ton in the first quarter of 2024.
Impact on Indonesia The movement of coal and CPO commodity prices certainly affects the Indonesian economy, which is one of the largest producers and exporters of these commodities.
According to data from the Central Statistics Agency (BPS), in November 2023, coal and CPO were the two main non-oil commodities that contributed the most to Indonesia’s exports.
Coal contributed US$2.69 billion or 11.14% of total exports, while CPO contributed US$1.64 billion or 6.77% of total exports.
Thus, if the prices of coal and CPO undergo significant changes, it will impact Indonesia’s trade balance performance.
Some economists predict that Indonesia’s trade balance will still record a surplus in December 2023, although the trend will decline due to the pressure on coal and CPO commodity prices.
According to a Bank Indonesia survey, Indonesia’s trade balance in December 2023 is estimated to have a surplus of US$1.5 billion, down from US$2.4 billion in November 2023.
Meanwhile, according to a Reuters survey, Indonesia’s trade balance in December 2023 is estimated to have a surplus of US$1.8 billion, down from US$2.6 billion in November 2023.
The decline in the trade balance surplus is caused by a larger contraction in exports compared to import contractions.
Indonesia’s exports in December 2023 are estimated to decrease by 8.5% annually, while Indonesia’s imports are estimated to decrease by 0.6% annually.
However, throughout 2023, Indonesia’s trade balance is projected to achieve a surplus of US$35.5 billion, up from US$21.7 billion in 2022.
This trade balance surplus will be one of the factors supporting Indonesia’s economic growth in 2023, which is estimated to reach 5.3%.