Indonesia grows the most palm oil. Now it wants to set the price

Indonesia grows and ships more palm oil than any other country, but the price the world quotes for it is set in Kuala Lumpur. President Prabowo Subianto wants that to change. The South China Morning Post reports that a new state-backed market, the Strategic Mineral and Commodity Exchange or BMKS, will open on 1 January and take charge of prices, volumes and export taxes for palm oil, nickel and coal. Indonesia does not only want to sell the raw material, Prabowo said: "We must become a setter for prices of global commodities."

Today that job belongs to Bursa Malaysia, which runs a futures contract known as the FCPO. A futures contract is an agreement to buy or sell a set amount of palm oil at a fixed price on a set future date. Enough of them trade every day that the price they settle at becomes the benchmark, the reference number refiners, traders and governments elsewhere write into their own deals. Malaysia produces far less palm oil than Indonesia but has run that contract for decades. On the Indonesian side, the financial regulator OJK has appointed Henry Rialdi as deputy commissioner for exchange regulation to supervise the new market.

The hard part is that supply and pricing power are not the same thing. Analysts told the Post that a benchmark only works when so many buyers and sellers trade on it that nobody argues with the number, and that kind of depth takes years to build. Traders who already use the FCPO have little reason to move. Holding most of the world's palm oil has never been enough to hold its price.

Why it matters

If you farm oil palm, work at a mill, or ship the oil out, your income tracks a number decided outside the country, and this is the government's attempt to pull that number home. The risk is a messy middle: two competing benchmarks, new reporting rules, and foreign buyers who keep pricing off Malaysia anyway. January is the date to watch, and then the volumes, because an exchange nobody trades on sets no prices at all.