The Chain: Buyers paying more for CSPO and IPOP disbanded

Buyers paying more for CSPO and IPOP disbanded

As covered in previous Chain Reaction Research analysis, IOI Corporation’s (IOI:MK) temporary suspension from the Roundtable on Sustainable Palm Oil (RSPO) has many of their buyers looking elsewhere to lock-in forward purchases of certified sustainable palm oil (CSPO). The market has now shown that as these forward purchases increase, sellers are likewise increasing their CSPO margins, making it more expensive for buyers to achieve their zero-deforestation commitments. This demand for CSPO pricing stability in the spot and forward markets has resulted in increasing margins for CSPO contracts.

As reported by Kuala Lumpur Kepong Bhd. (KLK:MK), due to IOI’s (IOI:MK) temporary suspension KLK is now selling its CSPO palm oil with greater premiums. KLK’s premiums have risen about 50% from estimated $20-$25 to $35-$40 a metric ton. KLK produces about 750,000 metric tons of CSPO.

Indonesian Palm Oil Pledge Disbanded as Singapore Sues and Fires Remain

At the same time, last week the Indonesian Palm Oil Pledge (IPOP) formally disbanded. IPOP was initially formed in 2014 at the United Nations Climate Summit, led by the Indonesian Chamber of Commerce (KADIN). Since that time membership grow to include six major palm oil producers and traders: Wilmar, Golden Agri-Resources, Asian Agri, Cargill, Musim Mas, and Astra Agro Lestari along with KADIN.

Upon disbanding, IPOP members stated – such as Cargill – that the effort was ending because the Indonesian government now has the ability to address fires and haze. Cargill’s Colin Lee, Director of Corporate Affairs said, “With the affirmative action by Indonesia towards a more sustainable palm oil sector, Cargill supports the dissolution of IPOP.”

Meanwhile, Singapore’s government is currently pursuing legal action against Indonesian companies for fires allegedly caused by Indonesian oil palm expansion. In May 2016, Singapore obtained a court warrant against the director of an Indonesian firm linked to the fatal 2015 fires that caused over S$700 million in damage to Singapore’s economy. Indonesia’s Environment Minister Siti Nurbaya Bakar suggested that she would review Indonesia’s cooperation with Singapore on environmental issues, stating: “Singapore cannot step further into Indonesia’s legal domain.”

May 2016 satellite imagery showed over 730 fires in Indonesia, clearly a sign that forest management and land-use issues are not yet fully addressed – and Singapore, Malaysia, and Indonesia all continue to issue haze advisories because of consistent and serious public health concerns.