Indonesia – As downpours continue to cast a cloud over the dry season, resource producers have slashed output targets and the government has been forced to look abroad to meet local demand for key commodities like sugar.
Soeroso Hadiyanto, deputy head of climatology at the Meteorology, Climatology and Geophysics Agency (BMKG) said on Wednesday that increased rainfall forecast for Sumatra, Kalimantan and parts of Sulawesi and Java in August and September could further disrupt agriculture and mining.
"La Nina has caused extreme weather, similar to what we had in 1998, but with greater intensity," Soeroso said on Wednesday. "Indonesia is once again experiencing a wet dry season, which will be followed by the rainy season in October." According to Soeroso, Sumatra and Kalimantan could see up to 400 millimeters of rain between now and October.
Kalimantan is Indonesia's largest coal-producing region. The country as a whole is the world's second-largest coal exporter, biggest palm oil producer and leading exporter of tin.
Bob Kamandanu, chairman of the Indonesian Coal Mining Association (APBI), said that the nation may miss its initial 2010 production target of 320 million metric tons, and that output may be flat from last year at 300 million tons.
"Some producers had declared force majeure because of heavy rains – if the wet weather persists until the fourth quarter, it will likely hurt output," Kamandanu told Reuters on Friday.
Force majeure is a legal clause allowing companies to abandon contractual obligations because of circumstances beyond their control, such as unseasonal downpours.
In anticipation of more rain, Kamandanu said some companies had begun to build up inventories, but that shipments could suffer if rains continue to stifle output and stocks are depleted.
The bad weather has also disrupted tin mining across Indonesia, prompting the Ministry of Energy to estimate that yearly output will come in 20 percent lower than expected.
Witoro Soelarno, secretary to the director general of minerals, coal and geothermal, said output may be 85,000 metric tons, compared with 105,000 tons last year.
Commerzbank analyst Daniel Briesemann warned earlier this month that tin stocks were shrinking. Indonesia usually exports about 85 percent of its production of the metal.
The showers are also taking their toll on palm oil production. According to Susanto, head of marketing at the Indonesian Palm Oil Association (Gapki), output could fall by as much as 10 percent this year.
"The prolonged rains in most parts of Indonesia, including in Sumatra and Kalimantan, may definitely lead to lower-than-expected production," Susanto said. "The weather is hurting palm oil production in a similar way to what is happening in Malaysia."
Susanto said output could top out at 20 million metric tons, well below the 23.2 million tons projected by the Ministry of Agriculture. Total production in 2009 was 21 million metric tons
On Friday, October-delivery palm oil futures rose as much as 1.3 percent to 2,708 ringgit ($855) per metric ton on the Malaysia Derivatives Exchange, and closed the morning at 2,704 ringgit.
Indonesian Trade Minister Mari Elka Pangestu on Friday said the government would import white sugar before the end of the year in an attempt to ensure inventories for the first five months of 2011.
The government feared the extended rainy season may cause a decrease in sugar production here this year.
The government had targeted sugar production at 2.7 million tons this year, but last month the Indonesian Refined Sugar Association (AGRI) predicted that the country would miss that target. Sugar production in 2009 totaled 2.4 million tons.
This month, Soetarto Alimoeso, director of the State Logistics Agency (Bulog), said sugar stocks were sufficient for this year but supply for 2011 was uncertain, necessitating the imports. (Bloomberg, Reuters, JG)