Market Report - Indonesia September 2016

Currency Influence

How is a local tax amnesty in Indonesia impacting on your essential oil prices? Well it’s quiet simple. By attracting local business and residents to return monies invested overseas at a reduced tax rate, the Indonesian government is hopeful that the increased tax revenues will stimulate further growth in the economy, which in turn will strengthen the local currency, the Indonesian Rupiah (IDR). This strength means that when converted into US Dollars it takes more dollars to buy the products, which results in your prices increasing.

This initiative has been spoken about since the turn of the year and has recently been implemented. It is because of this we’ve seen a sudden strengthening of the IDR, which is likely to continue throughout the course of 2016. Of course currency can be influenced by other global factors and of course by the performance of the US Dollar itself, but based on what we know locally we can expect further strengthening in the months to come.

Courtesy of You can see how over the past 9 months the IDR has appreciated by around 13% and is having a direct impact on Indonesian export prices. This trend is set to continue over the coming months largely due to the government’s tax amnesty.

Interested to understand more? Here’s what ‘Indonesian Investments’ had to explain:

Indonesia’s tax revenue realization in the first half of 2016 was disappointing. According to the latest data, Southeast Asia’s largest economy collected a total of IDR 518.4 trillion (approx. USD $39.6 billion) worth of tax revenue (including customs and excise) in the first six months of 2016, down 3.3 percent (y/y) from tax revenue realization in the same period one year earlier, and only 33.7 percent of total targeted tax revenue (IDR 1,539.2 trillion) set in the revised 2016 State Budget. The disappointing performance is mainly due to weak tax income from the oil and gas sector.
For taxpayers and small to medium sized businesses that reveal assets overseas of up to Rp 10 billion will be charged a redemption fee of 0.5%, while those that reveal more than Rp 10 billion will be subject to a 2% charge. Taxpayers willing to repatriate their assets from abroad will be granted a 2% redemption rate for July – September 2016, 3% for the period from October to December 2016 and 5% for January 1, 2017 until March 31, 2017.
Finally, taxpayers who declare their assets abroad without repatriation will cost 4% for the period July-September 2016 6% for the period from October to December 2016 and 10% for the period January-March 2017.

When we put this into some perspective it is estimated that within months of the amnesty Indonesia could see an increase of up to IDR 1,000 trillion (approx. USD $76 billion) in funds according to government estimates.
It is believed that a whopping IDR 11,450 trillion (approx. USD $867 billion) is invested/banked outside the country undeclared, which is nearly the same size as Indonesia’s gross domestic product (GDP).
The difference for normal taxpayers is significant. This new Bill allows individuals to bring money back into the country at 2% tax whereas a normal income tax rate in Indonesia would be as high as 25% (still not so bad some may say!).

La Niña Effect

Last year we wrote about the negative effects of the largest ever recorded El Niño, which brought some severe droughts to the region. Sadly, this year we have the opposite as significantly higher rainfall during the dry-season is causing mass devastation. The dry-season usually lasts from July to early September but Indonesia has been experiencing the exact opposite.

This time last year the news reported the devastating forest and peat land fires which burned an area the same size of Macedonia  (an area around 25,000 square kilometres) causing smoke to engulf large areas as far away as Singapore. This year the excessive rains are causing localised floods and landslides already resulting in many deaths.

We know these effects are not new. These are challenges the region has faced throughout its history but they are certainly becoming more extreme and frequent. We now understand the weather in more detail, which is why there is more information on the causes of extreme weather and a greater appreciation of the impact it has in a global commercial world.

Farming in remote land areas during these times cannot only be dangerous, but also will massively slow down raw material collections, potentially inflating prices due to shortages in supply. It is something that one way or another we face year on year and depending on the global market conditions, including the strength of market demand, their impact can go from unnoticeable to destructive. 


Here is a typical weather pattern seen during a La Niña season. You can see the ‘Wet’ weather highlighted in green sat on Indonesia for a period that can last months at a time when it is typically dry

Click the PRINT button at the top left of the page to download a copy of this report which is a preview of our full market report due to launch on Thursday 22nd September!


Cajeput Oil

Cajeput Oil Melaleuca cajuputi Harvest: All Year

We are generally seeing a return to good supplies, only recently slowed down by the local weather and religious holidays. After a long period of unsustainable supplies of quality material we have been pleased with the recent progress of supplies, which we hope will continue to improve throughout the year.


Market prices USD 25.00 /kilo
Cananga Oil

Cananga Oil Cananga odorata Harvest: June - August

The situation is similar to that last reported and despite this being a typical harvest period supplies are yet to improve. We hope by October this may have changed and additional supplies start to come online.
Demand continues to be high for this product, as you simply cannot buy any volumes with the market today being based on pure speculation. As such, today’s prices are at an all time high and will rise based on who wants what and when. We hope to see some fresh stocks soon but it’s unlikely to have any immediate impact on price as there is a waiting market for some signi cant volumes.

Market prices USD 110.00 /kilo
Citronella Oil

Citronella Oil Cymbopogon winterianus Harvest: October - February

As with other products the continued rains are negatively impacting harvesting and as such supplies have slowed. This at a time when Indonesian citronella oil has been experiencing fantastic growth across the world as once again Java material becomes a preferred choice for buyers everywhere. The weather coupled with the appreciating local currency has meant that prices have increased around 5% in the past couple of months.


Market prices USD 16.75 /kilo
Clove Oil

Clove Oil Eugenia caryophyllata Harvest: May - September

Supplies have remained fairly stable during what has been a very wet rainy season. Clove needs the rain but there is a limit to how much you want when trying to harvest and then dry before distillation. That said, overall the picture remains a stable one with no major changes expected in the near future.

Ginger Oil Fresh

Ginger Oil Fresh Zingiber officinale Harvest: January - May

There is a lot of interest in this product at the moment as the market continues to assess the viability of this quality as a long term option. It has been accepted in a number of new and interesting applications. Prices remain steady but supplies are not as consistent as they could be. Hopefully more controls coming from within the supply chain will improve this over the next few months.

Market prices USD 110.00 /kilo
Mace Oil

Mace Oil Myristica fragrans Harvest: March - April, October - November

There is certainly a knock on effect from the current situation impacting the supply and pricing of nutmeg oil but it is less damaging for mace as the markets are smaller and can withstand some short- term disruptions in supply. Of course local prices have risen and coupled with the appreciating currency small but hopefully manageable price increases have been seen.

Market prices USD 95.00 /kilo
Massoia Bark Oil

Massoia Bark Oil Cryptocaria massoia Harvest: September - May

Overall supplies in 2015 improved and continue to improve modestly in 2016 but this market sector lacks controls and continuity. Supplies are ad hoc and qualities need to be re-worked constantly in particular from some of the newer suppliers offering material from Irian Jaya province. Here the quality lacks maturity and with it the yields are particularly low which is in some ways confusing an expecting market that wants to believe this is a positive change in the market. Efforts are in place to improve the quality and continuity long term but it will take time to find the reassurances we all like to have when dealing with these premium natural ingredients. Today prices remain firm but stable.

Market prices USD 400.00 - 750.00 /kilo
Nutmeg Oil

Nutmeg Oil Myristica fragrans Houtt. Harvest: All Year

Collections have been slow for a few months and we are seeing overall supplies dwindle at a time when demand has certainly returned. Today’s situation is a result of the events from the past 18 months, which have seen this product yo-yo in supply and pricing somewhat uncontrollably. Stocks around the world have started to be depleted and as many return to source for new contracts alarm bells have finally started to ring if they hadn’t already.

Given the additional and unexpected rains in the main producing areas during June and July we have seen a period of even fewer collections. Farmers are unable to collect in such conditions and have chosen to leave the fruits on the trees to mature which will later be used for the spice market and not the oil market. Thankfully over the past couple of weeks, the conditions fuelling an almost daily price increase have weakened giving us all a little bit of breathing space to assess the market. It seems we’ve now hit a new price level which could be seen as rm based on the past 12 months or average if you look at the past 24 months! Whilst today the price increases have slowed a closer look at the market would suggest there could be a continued shortage of raw material into the new year with many producers not wishing to commit to any 2017 contracts leaving a few end-users worried about what may happen next. Hopefully a period of calm, but that may be too much to ask for on this one!

Market prices USD 72.00+ /kilo
Patchouli Oil

Patchouli Oil Pogostemon cablin Harvest: All Year

The effects of additional rains since June are not as big an issue for patchouli as they are for many other locally produced products due to the fact that patchouli generally grows on hillside slopes so the waters drain away. Where it does become a problem is when farmers try to dry the leaves outdoors after collection. The rains can slow down the drying process and in such times we also start to see a negative impact on quality. That said we have enjoyed a period of stability for this product and following the main producing season supplies are good which will be needed to fill the pipeline in the coming months with demand forecast to be a little stronger than in recent times due to the attractive and stable prices. With supply and demand overall well balanced for now the only impact on export pricing over the coming months is likely to be due to any additional appreciation of the Indonesian Rupiah.

Whilst this is the over riding story for Sulawesi material, supplies from Sumatra and Java are very low. We had hoped that things would improve last month but the rains have put a stop to this and it may be some time before supplies begin to improve.

Market prices USD 45.00 - 60.00 /kilo
Vetiver Oil

Vetiver Oil Vetiveria zizanioides Harvest: January - July

There could be a little light at the end of what’s been a very long tunnel but at this stage it isn’t enough light to start any celebrations. The conditions locally and globally have been terrible for some time now with supplies only coming in small amounts with questionable qualities at times. As such prices have soared and are likely to continue to remain rm for some time even with the prospect of seeing some fresh supplies from October.

The continuing rising prices do appear to have stalled but remain extremely firm, perhaps 30% higher than where they should be. However, even with this renewed optimism expect prices to stay high for the foreseeable future as there is a lot of pipe filling to be done in the market before we get to a balanced supply/demand situation.

Market prices USD 350.00 /kilo (Rectified if available)