Indonesia wants more sway over commodity prices - here’s how its new exchange can win over market

JAKARTA: The success of Indonesia’s plan to launch a commodity exchange will hinge on whether it can build a credible benchmark and persuade producers and traders to use it, experts say.The exchange, which is set to launch on Jan 1, aims to have greater influence over prices of key exports such as nickel products, palm oil and coal. The plan, announced by President Prabowo Subianto in his 2027 budget speech to parliament on Aug 14, received a thunderous response from lawmakers.“For decades, Indonesia has become one of the largest producers of some of the world’s most essential commodities,” Prabowo told the lawmakers.“Yet all too often, the prices of our wealth, extracted from our land and through the sweat of our people, are determined overseas, in another country’s commodity exchange,” Prabowo said. “I ask the people’s representatives, do we want to continue in this situation?”“No!” lawmakers roared back, rising to their feet.At their simplest, commodity exchanges are organised marketplaces that bring together raw ingredient producers, manufacturers, traders and financial institutions to buy and sell commodities or contracts linked to them. The industry’s response has been mixed. The Indonesian Nickel Miners Association, which has lobbied for a national mineral exchange, welcomed the plan but emphasised the importance of data integrity and clear governance, Reuters reported. The Indonesian Palm Oil Association (GAPKI) told news outlet Detik the majority of its members currently prefer to strike deals directly with buyers instead of listing themselves on a commodity exchange.Meanwhile, the Indonesian Coal Miners Association (APBI) said in a statement that it is still monitoring how the plan will be implemented before commenting further.Indonesia has the world’s largest nickel reserves, and is the world's largest exporter of thermal coal and palm oil. The plan for the Indonesian Commodity Exchange, or Icomex, comes amid headwinds such as a sharp decline in nickel prices, which fell from an average of US$21,474 per metric tonne in 2023 to US$15,349 in 2025. The slump prompted the government to cut its nickel ore production target from 379 million tonnes in 2025 to around 250 million tonnes this year in hopes of creating temporary scarcity to drive up the price. The new target, which was announced in January, caused prices to soar and reach a two-year high of US$19,350 per metric tonne in April. The prices have since cooled to around US$17,000 per metric tonne in August.The exchange plan also comes as Jakarta seeks to stamp out unlawful trade practices that it says deprive state coffers – in particular transfer-pricing, where a company sells goods too cheaply to an overseas sister company to avoid higher taxes and customs fees, and under-invoicing, when a company underdeclares the value of goods and transactions for the same tax evasion reasons. A worker loads fresh oil palm fruit bunches from Melati Hanjalipan cooperative palm oil plantation in Hanjalipan village, East Kotawaringin, Central Kalimantan province, Indonesia, Jul 22, 2025. (Photo: Reuters/Ajeng Dinar Ulfiana) Prabowo has launched a series of policies to address these practices, including a plan in May to centralise exports through a single company, called Danantara Sumberdaya Indonesia, under sovereign wealth fund Danantara.The plan rattled the commodity markets, forcing Jakarta to clarify that commodity exports would be monitored and not controlled by Danantara.Prabowo's latest initiative is the commodity exchange.“The prices formed at the bourse will serve as a reference for many institutions like the customs office and tax office,” said Wijayanto Samirin, an economist from Jakarta’s Paramadina University.Experts like Wijayanto told CNA that having its own bourse would allow Indonesia to better reflect the strategic value of the minerals and commodities it produces, but the authorities will need to convince producers and traders to shift away from more established exchanges. How exchanges become price benchmarks At their simplest, commodity exchanges are organised marketplaces that bring together raw ingredient producers, manufacturers, traders and financial institutions to buy and sell commodities or contracts linked to them. Because it can take weeks or months to produce, process and ship a commodity, much of an exchange’s activities revolve around futures contracts — agreements to buy or sell a specified quantity and quality of a commodity at a future date at an agreed price. For producers and buyers, futures offer a way to protect themselves against price swings. Traders and other financial investors also buy and sell these contracts based on their expectations of where prices are heading. “All these market participants have to factor in possible changes in supply and demand, weather, government policies and the global economy not just in the coming days but in the coming weeks or months,” said Tauhid Ahmad, a researcher from Jakarta-based think tank Institute for Development of Economics and Finance (INDEF). The more producers, consumers and traders congregate and transact on a particular exchange, the greater its liquidity – the ability to conduct large volumes of trades smoothly without dramatic price swings. Over time, a highly liquid and trusted bourse can become the place the wider industry looks to when deciding what a commodity is worth, even for transactions that never actually take place on that exchange.The London Metal Exchange, for example, has become a leading global benchmark for industrial metals such as aluminium, copper and nickel, while the Bursa Malaysia Derivatives has developed into the palm oil industry's leading international benchmark.As a major supplier of palm oil, nickel products and thermal coal, Indonesia has the potential to wield greater influence over how these commodities are priced. But being a major producer alone is not enough.“To gain market trust, an exchange needs to prove that its prices are credible and backed by reliable processes which are transparent and well governed. An exchange also needs to prove that it has mechanisms to detect and act against price manipulations or outright fraud,” Tauhid said.“It can take decades of building market confidence and trust for an exchange to become the price benchmark that Prabowo is hoping for.”Building that confidence could prove challenging for Indonesia at a time when its financial markets are facing heightened scrutiny, experts noted.Investor confidence in Indonesia’s capital markets was tested this year after global index provider MSCI flagged concerns about ownership and trading transparency in Indonesian stocks in January. MSCI raised the prospect of downgrading the country from emerging-market to frontier-market status if reforms are insufficient for its November review.Meanwhile, the Indonesian currency has lost about 7.8 per cent of its value against the US dollar over the last 12 months amid a broader sell-off in Indonesian assets. “This could add another layer of uncertainty for international investors, particularly if contracts on the new exchange are denominated in rupiah,” said Tauhid. Collapse Expand Traders at the London Metal Exchange. (File photo: Reuters/Simon Dawson) CONCERNS OVER FEES Indonesia will also need to convince its own commodity producers that they stand to benefit from trading on the new exchange.Indonesia already has a bourse for palm oil through ICDX, “but the transaction volume is still very small”, Eddy Martono, chairman of the Indonesian Palm Oil Association (GAPKI), told Detik on Aug 19. According to the ICDX website, only around 50 of Indonesia’s roughly 2,000 palm oil companies are registered to trade on the exchange. Meanwhile, Katadata news portal reported that of the 511 trillion rupiah (US$28.7 billion) worth of palm oil Indonesia exported in 2025, only 2.69 trillion rupiah’s worth was transacted on ICDX.Eddy said many palm oil companies are deterred by the membership, trading and clearing fees associated with exchange transactions.Conversely, producers do not have to deal with these fees and can even receive advance payment of up to 100 per cent when they deal directly with buyers. These direct dealings often reference the spot prices at Bursa Malaysia Derivatives. “The prices are actually quite transparent,” Eddy said. Indonesia could try to overcome some of these concerns by keeping the cost of trading on Icomex low, analysts said.“This is a huge deal for many players. What good are improved prices in, say, nickel, if the miners have to bear additional costs?” said Bhima Yudhistira, executive director of the Jakarta-based think tank Center of Economic and Law Studies. Prabowo has instructed the Financial Services Authority (OJK) to formulate rules for the bourse and introduce it on Sep 17. He has also named Sarjito, OJK's former deputy commissioner of consumer protection, as the sole candidate for the position of chief supervisor of commodity trading at the OJK. Sarjito, who goes by one name, will be responsible for supervising and regulating trade at the new bourse. At a "fit-and-proper" hearing conducted by parliament's financial committee for the role on Aug 24, Sarjito said he is committed to creating a “transparent, fair, orderly” exchange. "The exchange does not have to become huge on its first day, but it has to be trusted from the first transaction," he said, as reported by Reuters. The first priority would be detailing the commodities that must be traded on the exchange, Sarjito said.He said trading through the exchange would be made mandatory, but did not make clear whether this would cover export-bound sales or domestic ones. Coal barges queue to be pulled along Mahakam river in Samarinda, East Kalimantan. (File photo: Reuters/Willy Kurniawan) But analysts warned that requiring commodity transactions to pass through the new exchange could create complications for companies that have already entered into long-term contracts with overseas buyers.“There are many legal risks, because contracts would have to be amended because of the exchange requirement,” said Bhima, adding it could potentially expose Indonesia to disputes in international arbitration.GAPKI’s Eddy is also worried producers would be mandated to join the new exchange.“If too many policies cause our prices to become uncompetitive, buyers can look for other alternatives,” he said, referring to other vegetable oils like rapeseed or sunflower.Tauhid of INDEF said the rules governing the new exchange must avoid disrupting existing contracts or creating legal complications for buyers and sellers.The government also needs to clearly communicate how the new system will work to address concerns among market participants, he said, questioning if the timeframe for rules and the bourse’s launch was “overly ambitious”.START SMALL?The new exchange should start small and trade just a few commodities, said Wijayanto of Paramadina University. Starting with a small number of commodities, he said, would allow operators to identify potential problems with its trading, clearing and settlement systems, give time to assess whether transaction fees are competitive and determine whether its rules create unintended complications for existing contracts.“It needs to be implemented gradually. It needs a trial run,” he said.An incremental approach is not unusual, experts said.Bursa Malaysia Derivatives, for example, started with trading just crude palm oil futures contracts when it was established in 1980 under the name Kuala Lumpur Commodity Exchange. It then started offering futures contracts for other palm oil products like refined, bleached and deodorised palm olein and palm kernel oil as well as other commodities like soybean, gold and tin. “Successful bourses have had to continuously invest in technology, strengthen their trading and clearing systems, introduce new products and incentives to attract different types of investors, and adjust their rules as markets evolve,” Tauhid of INDEF said. The Bursa Malaysia building in Kuala Lumpur. (Photo: EPA/Fazry Ismail) For some exchanges, there were also growing pains along the way. The Malaysian exchange, for example, had to go through numerous mergers and restructurings before it emerged in its current form. Its counterparts in China, meanwhile, had to navigate strict government rectification programmes and consolidation efforts aimed at curbing excessive speculation and market volatility during the early years of market reforms in the 1990s.The programmes saw the number of futures exchanges shrink from around 50 in 1994 to just three — in Shanghai, Zhengzhou and Dalian — by 1998. The surviving bourses have since grown into major commodity marketplaces, with some of their futures contracts attracting international participants.Indonesia can learn from the pains and gains of exchanges elsewhere, and the Icomex could reap significant rewards if it succeeds, analysts said.“Having our own bourse would provide a reference price that reflects the value of strategic minerals produced in Indonesia,” Wijayanto of Paramadina University said.For local producers, it means having a clearer picture of what their commodities are worth, potentially reducing their reliance on layers of traders and intermediaries, he said.But the same system could backfire if the prices generated by Icomex are perceived to reflect what the government wants commodities to be worth rather than what international buyers consider fair market value.“This could instead create corporate governance issues and disrupt exports,” Wijayanto said, adding that the credibility of not just the exchange, but Indonesia’s wider commodity market, could be at stake, thus pushing buyers to source commodities from elsewhere. “The plan to establish this exchange must be implemented carefully and with thorough preparation.”