Hanwa signs contract on Argus fob Indonesia PKS index

Tokyo-listed trading firm Hanwa has signed one of the first long-term contracts based on the Argus fob Indonesia palm kernel shell (PKS) price index.

Hanwa concluded a 15-year contract for 150,000 t/yr linked to the Argus 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.

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.

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 Argus fob Indonesia PKS index under this long-term agreement.

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 Argus fob Indonesia PKS index if suppliers and consumers agree on the formula pricing.

Argus 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. Argus assessed fob Indonesia PKS at $71.89/t on 23 January.