Indonesian Market Update Q3 2020
The origins and standard quality of Cajeput has changed in recent times and for a very good reason. Historically the main source of Cajeput was Maluku Island and the oil was produced using a traditional copper condenser resulting in the oil turning pale green. Cajeput isn’t naturally green in colour only the distillation method caused this effect which is now changing to a natural pale yellow as distillers move over to more modern stainless steel equipment.
AAI have also heavily invested in new plantations across Sumatra and Java to ensure we have a more sustainable supply and consistent quality but there’s a reeducation process needed amongst clients to understand why they are seeing some changes in the oil profile.
Markets remain stable with only currency fluctuations impacting the export price.
Ageing trees and no new plantations has seen a slow demise in the volume of Cananga flowers that Indonesia produces, which over a period of time has impacted on price. The main use of the flowers locally is during the Ramadan season and with this now behind us production has resumed but with limited output. As export markets have been quiet, the low output has not caused any supply problems but it could become problematic should demand return. For now prices remain stable.
Indonesia has started to see the rewards for the recent years of investment by the government on citronella and has become a big supplier to the market. Output from Java, Sumatera, Sulawesi and Kalimantan have all contributed to the recent success.
Today you will find various qualities of citronella available with new varieties also being offered. Some citronella from Sumatra can have citronellal content up to 45% and a new popular citronella from Java, called “Minyak Aster” locally, has a citronellal content of 3-5% but geraniol up to 70%! AAI have been supporting many farmers on these new qualities and can offer to the market as well as out standard grade oil.
Currently prices remain stable and competitive on the global markets with the only variances coming as a result of currency fluctuations.
The clove season, like patchouli, is always timed around the wet and dry seasons which are so influential for these products. The prolonged rainy season impacted the start of the season but for clove this is continuing to cause tremendous problems for all the varieties of oil produced. The season starts with clove bud which usually runs from May to July. This didn’t start until July which has also pushed back the start of the stem and leaf campaigns.
Overall, we have seen a 2 month delay to what we would usually call normal but rains continue to hamper production efforts. The dry season really hasn’t started and before we know it the next rainy season will be upon us so there’s a battle to ensure there’s enough production within a short time frame to build stocks and maintain a consistent pricing for future supplies. That said many processors have reduced capacities for sale as exporters have advance bookings which will take volumes out of the local market after production.
Most ginger production in Indonesia is consumed locally with only a small percentage going to processors for oil production. The impact of COVID-19 has increase local demand as ginger has many known health advantages including boosting the immune system which locals are keen to do to help prevent infection. Therefore raw material availability remains low and is likely to remain low so long as we’re fighting the pandemic. Prices for raw materials are increasing and therefore so too is the oil.
Gurjun Balsam Oil
Supplies of gurjun have been limited as this is another product only produced during the dry season. As a result there has been some price rises but it is hoped that this will be rectified in the coming months. We believe September to December will be the best time to buy gurjun.
An interesting fact that some do not realise is that the oil isn’t produced by the distillation of the wood but in fact from the resin. Small holes are made in the tree and set alight. The heat causes the resin to bleed from the trees where it is collected for distillation. It is a natural process of the trees defence and also helps the trees fend off any potential infestations.
Nutmeg production and its pricing has been stable for the past couple of years with only currency fluctuations really impacting export prices.
The main quality for oil production comes from Java and Sumatra as the Sulawesi quality is high in Methyl Eugenol (5-6%) so is primarily used for raw spices. Sulawesi trees are more mature and the better oil is derived from the younger trees planted in Java and Sumatra. There has been some heavy planting of nutmeg trees 3-4 years ago which will bring additional volumes by 2025.
As has been widely reported the inclement weather has delayed the start of the patchouli season and as a result raw material supplies are very low and prices remain firm. It had been hoped earlier in the year that we should expect a good season but prolonged and heavy rains, especially in Sulawesi have damaged crops and delayed harvesting.
There is a high dependency on Sulawesi for raw materials as it now contributes to over 90% of all patchouli and back in April it suffered widespread damage due to heavy rains. This was followed by local lockdowns due to COVID and despite a relief in pricing prior to Ramadan (when farmers need money) and the currency crash in early April the underlying local price trend has been firming for many months.
As with clove, we are over 2 months behind a normal supply pattern and in many parts we are still waiting for the dry season to really start and it is already August. There is a silent demand from the market as buyers wait for better pricing but should that day come demand could be strong enough to push prices back up. It is very hard at the moment to predict when is the best time to buy but we will endeavor to try and help our clients make the correct choices. We remain hopeful of some price relief in September but by how much remains unknown at this time.
After a sharp fall in prices in early 2019, 2020 has seen much more stability in pricing. There can be a large swing in the quality so AAI take great care in ensuring we maintain a quality acceptable to our clients.