Prospects for Commodity Prices that Make RI Profit and Lose

"Amidst the global economic growth still weakening, commodity prices in 2024 and 2025 are likely to remain higher than half a decade before the Covid-19 pandemic," said World Bank Deputy Chief Economist Ayhan Kose through a press release.

Even though commodity prices will not rise too high, the impact still has the potential to restrain the rate of decline in global inflation.

In general, the World Bank estimates that the world commodity price index in 2024 and 2025 will be 105.3 and 101.6, respectively. These indices are lower than the indices for 2022 and 2023, which are 142.5 and 108, respectively. However, the indices for 2024 and 2025 are still higher than the index in 2021, which is 100.9.

The World Bank has also stated that even though commodity prices will not rise too high, their impact still has the potential to slow the decline of global inflation rates. Countries that depend on imported commodities will also be burdened, especially amidst the erosion of local currency exchange rates against the US dollar.

Crude oil

For crude oil, for example, its price will depend on the scale of conflict in the Middle East. In early April 2024, the Brent crude oil price jumped to $91 US dollars per barrel.

If there are no supply disruptions due to conflicts, the average price of crude oil is expected to be 84 US dollars per barrel in 2024 and 79 US dollars per barrel in 2025.

Also read: Food and Energy Inflation Could Plagu Indonesia Again

However, if the conflict in the Middle East continues to escalate and disrupt oil supplies, the average price could reach $92 USD per barrel in 2024. "In the worst-case scenario, crude oil prices could reach $102 USD per barrel. If that happens, global inflation in 2024 could increase by about 1 percent," the World Bank stated in the report.

Indonesia, as a crude oil importing country, will face a setback if the conflict in the Middle East worsens. Amidst the weakening of the rupiah exchange rate, Indonesia will be faced with a dilemma of whether to raise or maintain the price of subsidized fuel.

In the worst-case scenario, the price of crude oil could reach $102 USD per barrel. If that happens, global inflation could increase by around 1 percent in 2024.

Faculty member of the University of Indonesia's School of Economics and Business, Fithra Faisal Hastiadi, said that if the government raises subsidized fuel prices, the consequence would be high inflation and eroded purchasing power of the community. Conversely, if the government maintains fuel prices, the energy subsidy budget will expand and the fiscal deficit will widen.

"If the price of crude oil is in the range of 95-100 US dollars per barrel or above the macro assumption of the state budget, it would take at least 50 trillion to 100 trillion rupiah for additional fuel subsidies," he said.

Mining goods

The World Bank also projects that coal prices in 2024 and 2025 will still be above 100 US dollars per ton, despite a drastic drop from 344.9 US dollars per ton in 2022. Coal prices are estimated to be 125 US dollars per ton in 2024 and 110 US dollars per ton in 2025.

At that price, Indonesia, which is a coal exporter, will still benefit. However, this is under the condition that demand from coal-importing countries is strong.

The price of coal is estimated at 125 US dollars per ton in 2024 and 110 US dollars per ton in 2025.

The Central Statistics Agency (BPS) noted that Indonesia's coal export volume in January-March 2024 was 88.86 million tons, a 29.61% year-on-year decrease. The main factor for this decline is the demand downturn from China.

Meanwhile, for nickel and iron ore, the World Bank predicts that their prices will decrease significantly. As for copper prices, they will drop, albeit not too deeply.

The price of nickel, for example, will reach 25,834 US dollars per ton in 2022.

In 2024 and 2025, the prices of the main commodity of Indonesia's downstreaming are expected to decrease, each becoming 17,000 US dollars per ton and 18,000 US dollars per ton.

Also read: Nickel Price Fluctuations and Potential Blessings in Disguise

Food and plantations

Then what about the prices of food and plantation commodities? So far, Indonesia is still importing a number of food commodities, including rice, soybeans, sugar and wheat. Indonesia also still imports fertilizer raw materials.

The World Bank predicts that the price of world rice (referring to Thai rice with a maximum 5 percent broken kernel) will rise to 595 US dollars per ton in 2024. This price is higher than the 2021-2023 prices that range from 437 US dollars to 554 US dollars per ton.

Also read: Be careful, Indonesia has the potential to have another rice deficit in June 2024

In 2025, it is projected that the price will decrease to 550 US dollars per ton. The increase in rice prices in 2024 is due to a decrease in production in several rice-producing countries, including Indonesia, caused by El Niño.

The increase in global rice prices is not beneficial for Indonesia, which is currently in need of rice imports to strengthen the government's rice reserves (CBP). According to the National Food Balance Projections for 2024 which were updated on April 23, 2024, the National Food Agency (Bapanas) stated that the realization of rice imports in January-March 2024 amounted to 1.41 million tons and the planned rice imports for April-December 2024 were targeted at 3.76 million tons.

Staple

On April 25 2024, Director Main Perum Bulog Bayu Krisnamurthi stated that the cost of rice imports increased in line with the weakening of the rupiah against the US dollar and the increase in world rice prices. If the US dollar rises by 10 percent, then the total cost of imports will increase by 10 percent. The calculation is based on the difference between the rupiah exchange rate and the US dollar based on the assumption that the rupiah exchange rate in the 2024 APBN is IDR 15,000 per US dollar.

Fortunately, the World Bank projects that the prices of soybeans, wheat, and sugar will decrease and not reach their highest prices in 2021-2023. The price of soybeans is expected to be 500 US dollars per ton in 2024 and 475 US dollars per ton in 2025, lower than the highest price in 2022 which reached 675 US dollars per ton.

If the US dollar rises by 10 percent, then the total cost of imports will increase by 10 percent.

The price of sugar in 2024 and 2025 is projected to be $0.5 US dollars per kilogram (kg) and $0.46 US dollars per kg respectively, which is not as high as the price in 2023. In 2023, the price was $0.52 US dollars per kg. The same goes for the price of wheat, which is estimated to be $290 US dollars per ton and $285 US dollars per ton in 2024 and 2025 respectively, lower than in 2022 when it reached $430 US dollars per ton.

However, the price of several of these commodities remains higher compared to half a decade before Covid-19. This will still be a burden for Indonesia, which imports these commodities to meet domestic needs.

Cocoa and palm oil

Meanwhile, for agricultural commodities such as cocoa and palm oil, their prices are expected to remain relatively high. This will benefit Indonesia, which is an exporter of cocoa and palm oil along with derivative products.

The World Bank predicts that cocoa prices will be $5 US dollars per kg in 2024 and $4 US dollars per kg in 2025. This commodity's price is increasing significantly compared to the period of 2021-2023 which ranges from $2.43 US dollars to $3.28 US dollars per kg.

Also read: Increase in Cocoa Prices Benefits Futures Trading Investors

As for the price of palm oil, it is projected to be 905 US dollars per ton in 2024 and 825 US dollars per ton in 2025. This price is still above the threshold price for imposing export duties and export levies, which is 680 US dollars per ton.

Indonesia is poised to benefit from high cocoa and palm oil prices. However, once again, this depends on the demand from a number of countries that are the export destinations for both commodities.

The projected price of palm oil is 905 US dollars per ton in 2024 and 825 US dollars per ton in 2025.

For palm oil, for example, the demand from major trading partner countries is currently weakening. This affects the realization of the obligation to supply domestic cooking oil needs (DMO).

Based on BPS data, the export volume of CPO and derivative products as of March 2024 was 1.79 million tons or an increase compared to February 2024 and March 2023 which respectively reached 1.42 million tons and 1.76 million tons. Exports were worth 1.56 billion US dollars, up 29.8 percent monthly and down 6.18 percent annually.

The Director of Basic Needs and Essential Goods of the Directorate General of Domestic Trade at the Ministry of Trade, Bambang Wisnubroto, stated that the demand for CPO exports is still quite weak even though it has started to slightly improve. The export demand is expected to start improving in May-June 2024.

The weakening of demand has had an impact on the decline in the fulfillment of the DMO since February 2024. This is because the policy is correlated with export incentives at a ratio of 1:4. Meaning, CPO exporters and derivative products will receive export incentives four times for each fulfillment of one DMO.

"In February 2024, the realization of the DMO was only 131,000 tons or 43 percent of the target of 350,000 tons. Then, in March 2024, the realization increased to 163,000 tons (54 percent). However, from 1-28 April 2024, the realization of the DMO dropped again to 126,000 tons (42.2 percent)," stated Bambang, on Monday (29/4/2024).

Also read: Cooking Oil Crisis (Crisis)

In addition to cocoa and palm oil, the World Bank also predicts the price of natural rubber type TSR 20, or known as SIR 20 in Indonesia. The projected price is $1.55 USD per kg in 2024 and $1.6 USD per kg in 2025. The commodity's price, which is also exported by Indonesia, is higher compared to the prices in 2022 and 2023, which are $1.54 USD per kg and $1.38 USD per kg, respectively.

Referring to the commodity price prospects of the World Bank, Indonesia is expected to devise a strategy to encourage exports of several key commodities. This is in order to maintain export performance and strengthen the country's foreign exchange reserves amidst the weakening of the rupiah.

On the other hand, Indonesia is expected to anticipate the increase in import commodity prices during a weakened rupiah and while the purchasing power of the community has not fully recovered.