<article><p class="lead">Tokyo-listed trading firm Hanwa has signed one of the first long-term contracts based on the <i>Argus</i> fob Indonesia palm kernel shell (PKS) price index.</p><p>Hanwa concluded a 15-year contract for 150,000 t/yr linked to the <i>Argus</i> index with its Indonesia-based supplier and a Japanese power plant. Each party will negotiate the formula every six months, with the formula remaining linked to the index. </p><p>The first cargo under the agreement will load in June 2019. The consumer can receive both Indonesian and Malaysian PKS with maximum moisture of 20pc.</p><p>Pricing for Indonesian and Malaysian PKS is typically slightly different, and loading ports can result in price differences on the spot market. Such price differences can still be negotiated in a formula linked the <i>Argus</i> fob Indonesia PKS index under this long-term agreement.</p><p>Linking the long-term contract to the Argus index will ease operations and provide greater price transparency for the power plant, Hanwa renewable energy team manager Ryuu Lee said. Having a long-term contract is also expected to reduce the frequency of price negotiations between the counterparties. Hanwa plans to conclude more contracts linked to the <i>Argus</i> fob Indonesia PKS index if suppliers and consumers agree on the formula pricing.</p><p><i>Argus</i> started to assess the fob Indonesia PKS index on 10 May 2017. The index reached a high of $82.50/t on 17 May that year, but has gradually dropped since then. It touched a low of $69.25/t on 9 January this year after Indonesia's finance ministry announced a new regulation for calculating the national crude palm oil (CPO) fund in December 2018. The new regulation lowered the total PKS export tax package to $7/t from $17/t, which immediately put pressure on the fob Indonesia PKS price. <i>Argus</i> assessed fob Indonesia PKS at $71.89/t on 23 January.</p></article>
