Indonesia is one of the richest countries in term of raw commodities. Commodity investing Indonesia offers both potentials and risks for potential investors, especially since commodities have volatile global price patterns. The country’s raw commodities range from natural fuel to crops.
Top Indonesian Commodities for Investments
Indonesia’s top commodities provide substantial amounts of global market shares. Here are 12 commodities that are considered the top, and how their potentials measured in the investment trend.
Despite the much-discussed negative impacts on the environment, palm oil is still one of the most widely-consumed commodities in the world. Indonesia and Malaysia are big players in palm oil, with Indonesia owning about 50 percent of global market shares in this commodity. Palm oil is widely used in the manufacturing of products in various industries, and you can find it in many popular household or beauty products.
Palm oil is still a popular commodity for investment, but investors must consider the global sentiments toward this product. Despite the boost of productivity due to rising global populations, many countries have also considered switching to biofuel and other forms of environmentally-friendly commodities to reduce deforestation. In 2016, the Indonesian government has also issued five-year forest moratorium to reduce oil palm expansion, which may result in stagnant production for the next several years.
- Geothermal energy
Indonesia is the third biggest geothermal energy source in the world, and the country owns 40 percent of total geothermal energy market shares in the world. The rising trend of geothermal energy use in various industries has made geothermal energy a hot commodity in Indonesia. The government even has a special funding program called the Geothermal Fund Facility to support the industry.
Major islands such as Java, Sumatra, and Bali produce the largest amount of geothermal energy in Indonesia, and many areas even get their electricity from this source. However, many locations of geothermal energy sources are in conservation areas, making development efforts difficult. Investors must also consider difficult access to remote areas where geothermal energy sources may be located.
Indonesia is the second largest source of natural rubber in the world, right below Thailand. The country owns around 29 percent of natural rubber market shares around the world, with areas such as South Sumatra, North Sumatra, West Borneo, Riau, and Jambi as the biggest sources of natural rubber. ANPRC statistics reported that Indonesia produces around 3,200,000 tons of natural rubber every year.
Unlike other commodities, Indonesian natural rubber’s price is relatively stable in the global market. The country has supplied natural rubber to various national and foreign industries since the 80’s. The total sizes of rubber plantations in Indonesia also consistently increase. This commodity is a big hit in countries with well-developed automotive sector, such as China, India, Japan, North America, Western Europe, and Northern Europe.
Rice is not just a main staple in Indonesia, but also one of its important export goods. FAOSTAT rice production statistics in 2014 showed that Indonesia sat on the third place among the largest rice exporter countries in the world, right below China and India. However, Indonesian populations also consume rice in a significant amount, and farmers often use nonoptimal methods to produce rice, resulting in the decision to import rice from other countries such as Thailand and Vietnam.
Despite the popularity and large-scale production, investors may want to be more cautious about global rice price. The price of this commodity is volatile, because it has a vulnerable position in the global trade market. Currently, India, Thailand, and Vietnam are major rice players in the international market, so when one of these countries decide to change their policies, rice prices will change drastically in other countries, including Indonesia.
While China and India may be the biggest tea exporters in the world, Indonesia also has its own game in tea exports. Indonesia produces around 132,000 metric tons of tea per year, with more than half being exported. Despite the large numbers, not all areas in Indonesia are suitable for tea plantations. The highland areas in West Java, Central Java, and North Sumatra are the main sources of tea leaves.
Indonesia’s main production is black tea, known for its high amount of catechin. Large tea plantations in this country mostly belong to the state, while others are owned by private companies. Tea has a bright future for investors, since the global tea consumption rate is predicted to increase by at least three percent every year. In 2014, Indonesian government released plan to revitalize the state’s tea plantations.
Indonesian cocoa does not have a prominent place in international trade market compared to African countries. However, the country still has about 10 percent of market shares in international cacao trade. Indonesian cocoa production has also experienced exponential growths in the past 30 years, with areas such as North Sumatra, Sulawesi, West Java, South Kalimantan, and Papua as the major producers.
Most of the Indonesian cocoa supplies come from smallholders, instead of large private or state-owned plantations. The rising trend in locally-made chocolate consumption has also encouraged smallholder farmers to produce high-quality chocolate for local markets, with international buyers as the other potential customers. Indonesia mostly trades raw cocoa beans, and the major export destinations are the US, Singapore, and Malaysia.
Despite the increasing favor for clean energy, coal still has a strong position in the global energy market. Indonesia currently has around 6.3 percent of market shares in international coal trade market, with China, Japan, India, and South Korea as the major export destinations. Indonesian coal price experienced quite a big hit after the 2008 global financial crisis, but year 2016 saw a slight rise in coal price.
Another factor that encourages Indonesia’s coal industry is China’s policy to cut down its domestic coal production, partly due to the inabilities of various coal companies to repay their loans. Investors may still rely on coal’s popularity despite the global trend of clean fuel, but Indonesia needs to get involved in the clean coal industry to keep its shares in the coal market.
Coffee is one of Indonesia’s top commodities, especially with the rising trend of the coffee culture around the world. According to International Coffee Organization, Indonesia was the third largest coffee producers in the world between 2016 and 2017, below Brazil and Vietnam. Most Indonesian coffee is from Robusta variety, but the country also has “specialty” coffee types. Mandailing, Aceh, Blue Mountain, Bali, Toraja and Lampung are famous coffee types from Indonesia, and each has its own flavor profile.
Around 90 percent of coffee plantations in Indonesia are owned by smallholders. This makes Indonesia faces difficulties in creating a steady flow of coffee supplies, resulting in weaker positions in international coffee trade compared to Brazil or Vietnam. Since 2012, Indonesia has exported its coffee beans to Western Europe, Japan, United States, and South Africa. The rising demands of coffee make investments very important for Indonesian coffee farmers to grow their productions.
Indonesia is rich in coalbed methane (CBM) reservoirs, which are found mostly in South Borneo, South Sumatra, East Borneo, Riau, Bengkulu, and West Java. The country may have around 453 trillion cubics of CBM reservoirs, although these numbers still need confirmation. Indonesia has approximately 6 percent of global market shares in CBM, and it is a great future investment in energy source, since it is environmentally-friendly and available in abundance.
There are several hurdles investors must face to tap into this potential energy market. Indonesian government still uses the contract scheme similar to oil and gas industry, which has different characteristics. Investing companies are also responsible for all risks, with the government reimbursing expenditures after the projects are showing results. Investors must also consider bureaucracy and the lack of proper technology to tap into abundant reservoirs in remote areas.
Gold stays a favorite commodity in the global market, but its prices have shown a decrease in the last decade, but there is positive speculation about its price trend in the future. Gold is also used in various industries, especially in industrial countries or regions such as Japan, India, and Western Europe. GFMS statistics in 2014 showed Indonesia as one of the top ten gold producers, among countries like China, Russia, South Africa, Peru, Ghana, Mexico, and Canada.
Currently, gold demands in Indonesia are low, resulting in exports for most of its production. The Indonesian government also focuses more on the development of local companies and preventing the exploitation of national resources. This results in 10-year divestment policy, in which the government of Indonesian private companies must own the majority of stocks of foreign mining companies that have operated for a decade.
Like CBM, natural gas is a valuable commodity to support industry. Indonesia is among the top natural gas producers in the world, along with countries such as Russia, United States, Iran, China, Norway, Canada, and Saudi Arabia. Investors are facing considerable potentials in natural gas trade, especially since industrial countries such as Japan, United States, China, Russia, and Germany are potential markets for this commodity.
Indonesia’s natural gas reservoirs are concentrated in Natuna Island, Tangguh (Papua), Arun (Aceh), and Bontang (East Borneo). However, despite a significant amount of natural gas supply, Indonesian government still faces problem in fulfilling domestic demands for an energy source, and still relies on fossil fuels. The Indonesian government has even planned to limit export and develop natural gas’ potentials for domestic markets.
Indonesia is not the biggest oil country in the world, but oil has helped to contribute to the country’s development and finance in the past. However, the global oil trend has decreased since 2014, due to the combination of several factors such as financial crisis effect, rising trend of renewable energy sources, and the decrease of oil supplies.
Indonesia also suffers from lack of proper explorations and long-term investments in oil exploration. Oil companies have shifted their focuses from the Western part of Indonesia to the East, since the former’s oil supply is steadily decreasing. Despite the lower activities in oil exploration, there is a positive prediction for this industry in Indonesia, because there are several oil reservoirs that are still untapped, such as Banyu Urip and Bukit Tua oil reservoirs in East Java). However, investors still need to consider the fact that more countries are trying to reduce oil dependency.
Tips to Start Investments in Indonesian Commodities
Indonesia is a country that develops fast, following the rising economy trends in Asia Pacific regions. Commodities with long-term potentials such as natural gas, rubber, and tea are great investments. Investors can also consider supporting the developments of commodity industries that suffer from lack of financial support, such as chocolate, coffee, and CBM.
Investors can invest in various ways. The most popular methods are:
An investor can invest in company stocks related to the coveted commodities. Stocks are flexible, and easy to hold, sell, or buy.
Securing futures contract for popular commodities is a convenient way to start investing, especially if the investor only has minimum deposit funds. Futures also allow huge profits with the smallest leverage, if the strategy goes well.
Index and mutual funds
Mutual or index funds are ideal options for investors looking for diverse investments and liquidity. Investing in these funds means investors can only get profits from the stocks of commodity-related corporates. Investors can also have their money managed professionally.
Commodity Trading Advisors
Investors can get professional services from Commodity Trading Advisors, whose jobs include investing money from several investors in futures contracts and other options.
Investors with big capitals can start companies in Indonesia for more involvement in gaining profits from commodities. However, this requires knowledge about bureaucracy, formalities, and additional requirements such as work/living visa.
Investing in commodities is a popular way to grow profits, but one wrong strategy can mean great losses. Investors need to be informed of everything related to commodities before planning to invest. This means choosing the best consulting service before starting your business or investment, especially in Indonesia.
PT Sempurna Nilai Sukses provides all the services you need to start and manage companies. You will get information and assistance about navigating formalities, setting up companies, and starting investments. Visit Company-registration.co.id for all information you need about investing in Indonesia and company registration.