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Today's Headlines Malaysia
The crude palm oil (CPO) price touched its lowest level since 4 May 2017 due to expectations of rising CPO production in Malaysia, the world's second-biggest palm oil producer. At the end of trading on Tuesday (06/06) the palm oil price had fallen 0.08 percent to 2,497 ringgit (approx. USD $585.07) per ton on the Malaysian bourse (August 2017 contracts).
Nine or ten crude palm oil (CPO) producers want to join the Council of Palm Oil Producer Countries (CPOPC), the intergovernmental palm oil council set up by the world's two largest CPO producers and exporters: Indonesia and Malaysia. These two initiators signed an agreement in November 2015 for the establishment of the CPOPC - headquartered in Jakarta - that aims to control the global CPO supply, stabilize palm oil prices, promote sustainable practices in the palm oil industry, and enhance the welfare of oil palm smallholders; more or less the role that OPEC has in the crude oil industry.
The crude palm oil (CPO) price continues to rise supported by the impact of the El Nino weather phenomenon. El Nino causes a dry spell in Southeast Asia, home to the world's largest palm oil plantations. As a result, CPO inventories in Malaysia may have declined to 2.11 million tons, an 11-month low in February 2016. Meanwhile, Singapore-based agribusiness trader Olam International Ltd said CPO stocks will decline to the range of 1.5 - 2.0 million tons in the second quarter of 2016. Obstacles to higher CPO prices are Malaysia's strengthening ringgit (which curtails demand for Malaysian palm oil) and attractive prices of soybean oil.
Indonesia's rupiah and Malaysia's ringgit led gains among emerging market currencies in Asia on Wednesday (07/10) on the back of capital inflows (triggered by an expected delay in higher US interest rates), better-than-expected Malaysian export data and higher oil prices. The Indonesian rupiah appreciated 2.95 percent to IDR 13,821 per US dollar (Bloomberg Dollar Index), the strongest gain in seven years. Meanwhile, yields on ten- and 15-year Indonesian government bonds fell to 8.710 percent and 8.870 percent, respectively.
Again schools were ordered to shut (for at least two days) in Malaysia in order to protect children from inhaling smog as the air quality remains at very unhealthy levels (nearly hazardous in some regions). The air pollutant index still shows readings of between 201 to 300 in six districts around Malaysia's capital city of Kuala Lumpur. The haze, which - reportedly - may become the worst haze ever, is caused by companies' and people's illegal slash-and-burn practices to clear land for planting on parts of the Indonesian islands of Sumatra and Kalimantan. The situation is exacerbated by the (El Nino-related) prolonged dry season.
While Malaysian authorities ordered more schools to close on Monday, schools in Singapore reopened on the first day of the week as the air quality improved. However, although having improved, the air quality in Singapore remains unhealthy. The pollutant standards index in Singapore was 161 (meaning unhealthy) around 11 am local Singapore time on Monday (improving from a ‘hazardous’ reading of 341 last Friday). Meanwhile, Singapore mentioned five companies as having contributed to the forest fires that are causing the severe haze in Southeast Asia.
Morgan Stanley Investment Management, a leading global investment firm, said it now considers Indonesia’s rupiah and Malaysia ringgit as the most attractive emerging-market currencies. Both currencies have been the worst-performing Asian currencies against the US dollar this year amid looming tighter monetary policy in the USA, low commodity prices and China’s economic slowdown (as well as a political scandal in Malaysia). The ringgit has depreciated 21 percent, while the rupiah has weakened 16.2 percent against the US dollar since the start of the year. Both currencies are touching 17-year lows.
The haze, caused by dozens of forest fires on Sumatra and Kalimantan, and which have spread to Singapore and Malaysia, is expected to plague the three countries in the next couple of days. Indonesian authorities, which are currently investigating forest fires in Central Kalimantan, South Sumatra, Riau, West Kalimantan and Jambi, mentioned that there are 107 people who have been named suspects, involved in 68 acts of slash-and-burn practices (according to Indonesian media).
Indonesia and Malaysia are again plagued by a traditional haze caused by forest fires in Palangkaraya (Central Kalimantan). The thick haze resulted in the cancellation of various commercial flights at the local airports in Jambi (Sumatra) and Surabaya (Java). Furthermore, it was reported that in parts of Malaysia an unhealthy air quality was recorded.
Indonesia’s foreign exchange reserves fell to USD $105.3 billion in late August 2015 (from USD $107.6 billion in the preceding month) as the government used foreign exchange (forex) for external debt payments while the central bank (Bank Indonesia) used part of the forex to intervene in the currency market in an effort to support the ailing rupiah rate which has been under severe pressure amid looming further monetary tightening in the USA and concern about the hard landing of China’s economy.
Latest Columns Malaysia
Although there is plenty of opposition to – and criticism on – Indonesia for allowing crude palm oil (or CPO) to play a big role in the domestic economy (Indonesia being the world’s largest producer and exporter of CPO), the country is currently feeling the windfall from soaring CPO prices. And, it is contributing to Indonesia’s recovery from the severe – and still ongoing – novel coronavirus (COVID-19) crisis.
Earlier this week, the central banks of Indonesia (Bank Indonesia), Malaysia (Bank Negara Malaysia), Thailand (Bank of Thailand) jointly announced the launch of the local currency settlement framework. This framework aims at boosting the use of local currencies in transactions (specifically related to trade and investment) conducted between Indonesia, Malaysia and Thailand in an effort to reduce these countries' dependence on the US dollar.
Indonesia's Industry Ministry selected the industrial estate in Berau (East Kalimantan) as the center for the downstream palm oil industry in Kalimantan. Furthermore, Panggah Susanto, the Industry Ministry's Director General for Agriculture industry, said the government proposes to select Berau as one of the palm oil centers within the Palm Oil Green Economic Zone (POGEZ) scheme. Berau is chosen to replace Bontang because the former has 3,400 hectares of (clear and clean) industrial land available, while land in Bontang still falls under "protected forest" status.
The crude palm oil (CPO) price touched its highest level so far this year. On Tuesday (20/09) palm oil futures (December delivery) - traded on the Kuala Lumpur exchange - ended the day at 2,690 ringgit (approx. USD $651 per metric ton). Palm oil prices are rising as CPO production in Indonesia and Malaysia will remain subdued this year due to droughts that were brought by the El Nino weather phenomenon earlier in 2016, while there is expectation of a rather wet season later this year due to the La Nina weather phenomenon.
The stock exchanges of Indonesia and Malaysia agreed to join hands to develop a World Sharia Stock Market Center. Both sides signed a memorandum of understanding (MoU) on Tuesday (02/08) at the 12th World Islamic Economic Forum (WIEF) in Jakarta. Both exchanges - the Indonesia Stock Exchange (IDX) and the Bursa Malaysia - are eager to establish a global benchmark for Islamic capital markets. This is part of an effort to broaden the usage and availability of Islamic liquidity and products worldwide.
Crude palm oil (CPO) production in Indonesia and Malaysia is expected to decline due to the impact of the El Nino weather phenomenon (that brought a prolonged dry season to Southeast Asia). CPO production in Malaysia could fall between 1.5 and 2 million tons this year according to Dorab Mistry, Director at Godrej International. Declining output in the world's two leading palm oil producers and exporters implies that palm oil prices should be able to rise further. At the start of this week palm oil futures traded in Kuala Lumpur (June delivery) rose to 2,779 ringgit (approx. USD $695) per ton, the highest level since March 2014.
Indonesia and Malaysia, the world's leading crude palm oil (CPO) producers and exporters, will cooperate for the development of a special economic zone on Indonesian territory to boost the palm oil industry's downstream industry. Private companies will be given incentives to invest in this zone and develop industries to process CPO into olein, a key ingredient for the production of cosmetics and margarine. Furthermore, both countries plan to establish the Council of Palm Oil Producer Countries.
Crude palm oil (CPO) output in Indonesia, the world’s largest CPO producer and exporter, may decline by 20 percent to 27.5 million tons in 2016 due to the negative impact of the El Nino weather phenomenon. On a positive note, declining CPO output in Indonesia could provide some support for benchmark Malaysian palm prices that fell to a 6.5-year low of 1,836 ringgit last week.
The total number of foreign tourist arrivals to Indonesia in 2014 was 9.44 million, up 7.19 percent from the preceding year, meaning that the government target of welcoming 9.3 million foreign tourists last year was achieved. As usual, most foreign tourists entered Indonesia through the Ngurah Rai International Airport in Bali, the most famous tourist destination in the world’s largest archipelago. During the whole year of 2014 a total of 3.71 million foreigners spent some time on Bali.
Bank Indonesia (the central bank of Indonesia) and the Financial Services Authority (OJK) signed an agreement (the ASEAN Banking Integration Framework, abbreviated ABIF) with Malaysia’s central bank to support banking integration in the ASEAN region. The website of Bank Indonesia states that ABIF “provides an operating framework for ASEAN member states to implement principles and the integration process in the banking sector to support the ASEAN Economic Community (AEC) [which is to be implemented later this year]”.
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