Indonesian Exporters Threatened by Rupiah at 9,000

By Lilian Karunungan

Nov. 25 (Bloomberg) -- Indonesia’s coal and palm oil exporters’ profit margins may narrow should the rupiah rise 5 percent to 9,000 per dollar and costs of fuel and rice keep climbing, industry groups said.

Seven of 16 analysts in a Bloomberg News survey predict a gain in the currency, Asia’s best performer this year, to 9,000 or stronger against the dollar by the end of 2010. The median estimate is 9,150, compared with 9,413 today. Indonesia is the world’s biggest producer of palm oil and the largest exporter of power-station coal.

The currency rising to 9,000 “is a critical level,” Bob Kamandanu, chairman of the Indonesian Coal Mining Association, said in an interview in Jakarta on Nov. 20. “It’s too strong.”

Indonesia’s exports, which account for 24 percent of gross domestic product, fell 19.9 percent in September from a year earlier after dropping 15.4 percent the previous month, statistics bureau data showed on Nov. 2. The rupiah has risen 16 percent this year, nearly double the pace of the South Korean won. It reached 9,280 on Oct. 15, the strongest level since September 2008, and last traded at 9,000 in July 2007.

Overseas investors plowed funds into Indonesian stocks and bonds this year to benefit from the fastest growth in Southeast Asia, driven by domestic consumption. The Jakarta Composite index of shares soared 82 percent as funds based abroad purchased $951 million more local shares than they sold, according to stock exchange data.

Danger Level

A rate of “9,000 would be dangerous for our exporters,” Fadhil Hasan, executive director of the Indonesian Palm Oil Association, said in an interview in Jakarta. “It’s going to hurt them.”

The rupiah may weaken next year as investors pare holdings of riskier assets on concern about the speed of the global economic recovery, said Tetsuo Yoshikoshi, a senior economist in Singapore at Sumitomo Mitsui Banking Corp.

“I don’t expect the rupiah to appreciate toward 9,000,” Yoshikoshi said. “It’s still a risky asset even if many economists are bullish on the economy. We’re going to see a slowdown in the recovery pace of the global economy. That will be a trigger for some kind of risk aversion.”

Oil, Food Costs

Coal producers’ earnings are also being hit by increased fuel prices, which account for 30 percent of costs, Kamandanu said. Oil on the New York Mercantile Stock Exchange has risen 71 percent this year and traded at $76.37 per barrel in after-hours trading.

If the price goes above $80, “that would kill our operations,” said Kamandanu.

The palm oil association’s 378 growers and producers also have to grapple with rising prices of food to feed their workers, said Steaven Halim, second secretary at the association.

The wholesale price of rice in Indonesia was at 5,550 rupiah per kilo of rice today, up from 5,400 a year ago, according to PT Food Station Tjipinang Jaya, Indonesia’s biggest market for the grain. Rice production may be affected by dry weather caused by El Nino, the weather pattern that creates a warming of the Pacific Ocean, can prolong the dry season in parts of Asia, damaging agricultural output.

If the rupiah rises to 9,000, “that may be a problem at the farms,” Halim said. “In nominal terms, the farmers will have decreasing income, while they are paying more for the staple food.”

To contact the reporter on this story: Lilian Karunungan in Jakarta at lkarunungan@bloomberg.net.