Exporters See Demand Drop Despite Declining Rupiah
Slowing overseas demand for Indonesian goods is the latest issue for the country’s exporters, even as the rupiah depreciates to a level that favors their businesses.
Fadhil Hasan, secretary general at the Indonesian Palm Oil Association (Gapki), said orders have declined as demand wanes from the European Union, India and China. Crude palm oil shipments stood at 1.6 million tons in September, down from 1.8 million tons in August, he said.
In the period to September from August, exports to India fell by 14 percent to 546,000 tons, exports to the European Union dropped by 19 percent to 481,000 tons, and exports to China slipped by 4 percent to 293,000 tons.
Even though a weaker rupiah benefits exporters by making their products more competitive, Fadhil said most of them would prefer a stable rupiah so that they can better plan their businesses.
Last week the rupiah hit its weakest level in 17 months, as foreign investors flocked to dollar assets on concerns over the euro zone’s debt crisis. The Thai baht has also taken a hit, trading at a 15-month low against the dollar last week, while the Indian rupee traded at a record low.
The rupiah traded at 9,050 to the dollar on Friday, and on Thursday it was as low as 9,143, the weakest since June 2010. It had been as strong as 8,502 in August, when exporters clamored for a weaker currency.
“We’d be happy if the central bank could maintain the rupiah in the 8,800 to 9,000 level,” Fadhil said.
Bank Indonesia will stay in the market to reduce volatility, central bank deputy governor Muliaman Hadad said on Wednesday.
Husni Daud, a rubber exporter from South Sumatra, said the rupiah’s recent weakness gives rubber producers room to breathe despite lower rubber production and a possible price drop.
“We are entering a heavy rain season, which will reduce our production,” Husni said.
Rubber prices are down to just above $3 per kilogram, Husni said, compared to $6.4 per kilogram in February. The price drop stems from worries about the economic slowdown in European countries, which account for 11 percent of total global demand for natural rubber, according to data from the European Tyre & Rubber Manufacturers Association.
Husni hopes that regional and domestic demand can support sales next year. Demand from the 11 members of the Association of Natural Rubber Producing Countries, which account for 57 percent of global consumption, is estimated to rise 2.9 percent next year to 6.3 million tons, said secretary general Kamarul Baharain Basir, as quoted by Bloomberg.
“Given these uncertainties, I hope that the authorities can maintain the exchange rate at around 9,000. That would mostly benefit the farmers,” Husni said.
The dollar could be volatile for the next month, or until political leaders find a solution to the euro zone crisis, said Fauzi Ichsan, managing director and chief economist at Standard Chartered Bank Indonesia.
He expects that Asian currencies will rise again in six to nine months’ time as investment returns to the region.
“We expect that by the end of next year the rupiah will amount to 8,400 to 8,500 per US dollar because there is a prospect of Indonesia getting its investment grade in the middle of next year,” said Fauzi.