Indonesia’s tighter state control over commodity exports triggered sharp declines in palm oil and coal stocks, unsettling global commodity markets.
Indonesian palm oil and coal stocks experienced a significant downturn on Wednesday following reports that President Prabowo Subianto's government is moving to implement tighter state control over commodity exports from Southeast Asia's largest economy. This proposed policy aims to channel strategic resource exports through state-owned enterprises, a move that has rattled markets and raised concerns among investors and commodity traders.
The primary cause behind this initiative is the Indonesian government's concerted effort to bolster state revenue and address economic challenges. President Subianto's administration seeks to fund costly flagship policies, such as a nationwide free school meals program, and to combat widespread issues like under-invoicing, tax evasion, and capital flight of export earnings. Under-invoicing involves declaring shipments at lower values to shift profits to lower tax jurisdictions, a long-standing problem in Indonesia's commodities industry. Furthermore, the government intends to maximize foreign exchange inflows to support the plunging rupiah, which has been trading near record lows against the dollar. The plan involves establishing a new state-backed agency, supervised by Danantara, the sovereign wealth fund directly reporting to President Subianto, to manage raw material exports. This transition is expected to begin in June 2026, with full implementation by September, initially targeting coal and crude palm oil, and potentially expanding to other strategic commodities.
The immediate consequence of these reports was a sharp fall in the stocks of major Indonesian commodity producers. Palm oil companies like First Resources Ltd and Golden Agri-Resources Ltd saw declines of as much as 9.3% and 1.8% respectively in Singapore, having already plunged over 12% on Tuesday. PT Perusahaan Perkebunan London Sumatra Indonesia also fell by 2.6% in Jakarta. Similarly, Indonesian coal stocks, including PT Alamtri Resources Indonesia and PT Bumi Resources, dropped by up to 4.7% and 3.8%. The Jakarta Composite Index, Indonesia's benchmark stock index, closed 3.5% lower on Tuesday due to speculation about the new body and continued its slump on Wednesday.
The broader economic and industry-specific impacts are significant. As Indonesia is the world's largest producer and exporter of both thermal coal and palm oil, greater state control over shipments threatens to increase global prices for these raw materials. This could roil global markets, affecting industries that rely on these commodities. For instance, more than half of China's coal imports come from Indonesia, and Chinese industries may accelerate their search for alternative sources from countries like Russia, Mongolia, and Australia. For investors, the unclear rules and potential for new paperwork, approvals, and settlement steps introduce an "Indonesia premium," demanding a higher expected return due to increased execution risk and pushing down valuations. This policy signifies a broader shift towards state control over strategic sectors and cross-border financial flows, potentially making Indonesia a less predictable operating environment for investors. The government hopes this measure will optimize tax revenues and ensure export earnings remain within the country, strengthening the rupiah and supporting the national economy.
