Palm & Lauric Oils Price

Outlook 2019

By Dorab E Mistry
Godrej International Limited
 Congrats Indonesia
• Heartiest congratulations to Indonesia on a
very dynamic Bio Diesel policy
• Well Done GAPKI and the entire Palm Oil
industry in lobbying your government
• Congrats on successful IPOC conferences
• Economic Outlook for Indonesia is
Extremely Bright
 IPOB–SEA-SOLIDARIDAD
• Historic MOU signed on 16 July 2018 in
Jakarta between Indonesian Palm Oil
Board, Solvent Extractors Association of
India and SOLIDARIDAD to promote
ISPO
• Indonesia and India working together to
promote Sustainable Indonesian Palm Oil
 Background
• Post the EL Nino of 2015, we have seen a
very strong recovery in palm production
• Very big soybean and sunseed crops 2018
• Very strong US Dollar
• Currency devaluation in Brazil Argentina
Indonesia Malaysia India Pakistan
• Trade Frictions
 Well done GAPKI
• Indonesian Palm production has performed
extremely well and GAPKI production
numbers were the best estimate
• Indonesian planted area appears to be
higher than what we expected
• The usual method of calculating new
plantings by measuring seed sales has not
been reliable
 Background contd
• Malaysia has been a laggard
• Malaysia has failed to tackle labour
shortages and its re-plantings are behind
schedule
• A year of big production and low prices has
hit Malaysia in 2 ways – Low crop & Low
prices
 Reasons for low prices
• Palm production has been very good
• Palm lost market share to soya and sun oil
• Indian imports were lower – Indian crops
were under-estimated and India raised
import duties
• Soybean crushings increased due to meal
demand and Soya currencies are very weak
 Trade Wars
• No one has ever won a Trade War. Both
sides always suffer
• USA has benefitted from Free Trade but
politicians blame Free Trade for long term
trade deficits. Democrats and Republicans
are equally guilty.
• International Trade involves dealing with
National Pride and Feelings
 Trade Wars
• U S A is trying to resolve trade matters with
a blunt instrument
• Chinese National Pride and their
determination have been overlooked
• They under-estimated Mexican national
pride also.
• These countries are very proud of their
heritage and will not capitulate
 Trade Wars
• U S farmers have lost Billions of Dollars of
Soybean sales as a result of the Trade War
with China
• China is encouraging soybean imports from
Brazil, Argentina, Canada, Ukraine and
many other countries
• U S farmers may NEVER regain their old
market share
 Trade Wars
• U S politicians and farm leaders have said
many rude words about China. They have
no idea how much they have upset their best
customer
• Meaningful Trade Talks with China may
only start after the November mid term
elections in early 2019
 If a USA CHINA Deal happens
• Soya complex futures in Chicago could rise
modestly because Brazil will harvest early
• South America looks poised for big crops
and big exports
• Weak currencies will favour South America
• New Brazilian President enjoys massive
farmer support. Plantings and acres rise
 India – import duties on Palm
• On 2 March 2018, India increased import
duty on CPO to 48.4% and for RBD Palm
Olein to 59.5%
• Import duty on soya oil, sun oil and rape oil
is now 38% from 14 June
• Between 2 March and 14 June, Import duty
on soya oil was 33% and on sun oil & rape
oil it was 27.5%
 Will India reduce import duties
• NO. Indian Government wants to help
farmers and oilseed farmers are the poorest
• India’s import bill for vegoils is out of
control
• If under an FTA import duties are to be
reduced, some other imposts such as Cess
or Surcharge can be levied
 Will India reduce import duties
• It will be political suicide for the Ruling
BJP if import duties on veg oils are reduced
• The differential in import duty between
Crude and Refined Palm needs to be
expanded to protect the Indian Refining
Industry which is under intense pressure
• Each country does what is best for itself
 Palm Prospects
• My estimate of 2018 Malaysian Palm
production remains19.2 to 19.5 mln mt.
• I have raised my estimate of Indonesian
Palm production from 38.5 mln mt to 40
mln mt.
• Higher production in other countries like
Thailand and in Central America also
 Palm Prospects 2018 & 19
• In 2018, world production of Palm Oil is up
by almost 5 million tonnes over 2017
• Indonesia has successfully captured a larger
share of palm exports in 2018.
• Expansion of palm plantings in Indonesia in
recent years has been much higher than
expected
 Year end Stocks
• Palm stocks in Indonesia are already close
to 5 million tonnes and will keep rising
• Exports weaken in winter
• Malaysian stocks are currently about 2.8
million tonnes and will rise further in Q4.
• Will Indonesia reduce or remove the Export
Levy used to subsidise palm bio diesel?
 Year end Stocks
• By end December 2018, Malaysian stocks
can rise to between 3 mln and 3.3 mln
tonnes.
• Palm needs to be competitive to regain
export markets
• Bio diesel mandates must be implemented
in full
 Other Vegetable Oils
• Sun oil began to lose market share in India
due to its premium price
• Sun seed are not affected by the Trade War
• Sun oil prices are now almost same as soya
oil and hence sun oil exports will rise. Sun
oil will regain markets in India, China,
North Africa and also in EU
 Rapeseed
• Rapeseed oil is also losing market share due
to its premium over soya oil
• Europe, Canada and Australia are not able
to increase Rapeseed production
China will import more Canola and
Rapeseed this year
Rape oil will lose to palm oil in bio diesel
 CHINA
• Will the USA China Trade Dispute give
some benefit to Palm Oil Demand in China
during Q4 of 2018 and Q1 of 2019 ?
• If China crushes fewer soybeans, palm must
benefit. It remains to be seen how much.
• After February 2019, China may also
import more bio diesel
 Soybeans & Soya oil
• USDA projects massive carry over stock of
beans as a result of the Trade War
• Brazil & Argentina may increase plantings
more than market expects
• Expansion of soya oil production will be
slower due to smaller Chinese crush
• India, Pakistan, Vietnam may export meal
to China
 Soya oil & Bio diesel
• USA soya oil stocks will be tight
• Will US soya bio diesel benefit if in
November the Democrats take the House ?
• Brazil went from B8 to B10 from March
2018. Will consume 4.5 mln mt soya oil
• Argentina must increase soya bio diesel use
 Currencies
• New Brazilian President may help stabilise
the Real. Argentina has problems with its
currency. Weak Peso is bearish for soya
• India Rupee was 64 to USD in Jan 2018.
Today it is 74. Could slip further. Rupee
outlook is tied to Indian political outlook
• These are bearish influences
 Indian Imports
• 000 12-13 17-18 18-19
• Soya 1,090 2,950 2,950
• Palm 8,240 9,250 10,000
• Sun 980 2,500 2,550
• Others
• Total 10,670 14,950 15,700
 INDIA
• No idea about 2019 monsoon rains
• Indian crop yields slowly improving.
• Indian Government will protect farmers
• General Elections in 2019 may create some
turbulence
• Indian imports 2018-19 will be higher by
750,000 mt. Main increase will be Palm
 INDIA
• India grows at night – when government
and politicians are fast asleep !
• After 2019 elections, what kind of
government will be formed ?
• Will economy grow faster or slower
• 2018 soya crop is up 15% to 20% at 11.2
mln mt
 Potential EL Nino
• Will a new EL Nino develop from here
onwards ?
• If it is of moderate intensity, it will affect
Palm production from July 2019
• That period will coincide with the
biological Low Cycle and the Resting
Period for most palm trees
 Brief look at Meal & Corn
• Crush margins all over the world are
excellent
• Meal prices are cheap mainly because of big
production of oilseeds
• Price outlook for Corn in 2019 is much
better than in 2018
• Corn Ethanol has a big future
 World Energy Demand
• World Energy Demand grew in 2016-17 by
3 mln mt as a result of increases in
Indonesia and Brazil
• Energy Demand in 17-18 also rises by 3
mln mt due to Brazil and Indonesia
• Energy Demand in 2018-19 will be
interesting due to much higher mandate in
Indonesia.
 World Food Demand
• World Food Demand for veg oils grows at a
steady 3 mln mt annually
• 2017-18 and 2018-19 Food Demand also
expected to grow 3 mln mt per year
 World Veg oil Incremental
Supply
• 000 tonnes 17-18 18-19
• Soya oil + 2,000 + 1,000
• Rape oil + 500 + 500
• Palm oil + 5,000 + 4,000
• Others + 500 + 1,000
• Total Supply + 8,000 + 6,500
• Total Demand + 6,000 + 7,000
 Assumptions for Medium Term
Price Outlook
• Brent crude USD 80 to 90 per barrel
• December 2018 Rate Hike and 2 to 3 more
hikes in 2019 by FED
• November 2018 will be a watershed
• World GDP growth in 2019 lower than in
2018
• U S Dollar remains strong
 Palm Price Outlook
• We are close to Bottom
• At current Ringgit levels, BMD futures
around 2100 make Palm competitive and
help regain exports
• If Diesel or Gasoline prices rise, PME
blending may become more attractive
• RBD Olein needs to remain at or below
USD 550 FOB to recapture markets
 Lauric Oils Outlook
• Coconut Oil supply is better in 2018
• Coconut Water popularity has peaked
• Cold pressed CNO demand has peaked
• CPKO production is higher and non-edible
demand is growing only at a steady pace
• Stocks of CPKO and CNO will rise
 Lauric Oils Outlook
• Prices of CPKO & CNO will remain under
pressure
• Processing CPKO or CNO and making
Speciality Fats is going to be very attractive
in the next few months and in future years
• Good Marketing is the key
 Conclusion
• There is too much uncertainty from
November onwards. Hence I am not saying
how much prices will recover in Q2 of 2019
• Beware an emerging EL Nino
• Ultimately, Weather will help a recovery in
veg oil prices
• GOOD LUCK & GOD BLESS