A PRACTITIONER’S VIEW OF THE MARKET ANDCPO PRICE OUTLOOK

Arif P. RachmatCEO, Triputra Agro Persada Group

INDONESIA’S POLICIES & IMPLEMENTATIONS

.

2017Insights on Product ion, Consumption and Price

INDONESIAGovernment & Industry

United as One: from Food & Energy Security to Sustainability

2018Prediction on Global Palm Oil

Supply Demand & Price Outlook

.

.

.

2017“In the Business World, the Rearview Mirror is Always Clearer than Windshield”

-Warren Buffet-

2018Prediction on Global Palm Oil

Supply Demand & Price Outlook

INDONESIAGovernment & Industry

United as One: from Food & Energy Security to Sustainability

Actual Average Q42017 : USD 627

So How Accurate was My Prediction?

Was it SCIENCE ….. or Just LUCK ??

R² = 0.79

450

475

500

525

550

575

600

625

650

675

700

725

4,500,000 5,500,000 6,500,000 7,500,000 8,500,000 9,500,000

Mdex (USD/ Ton)

Major Countries’ Palm Oil Stock (Ton)

Inverse Correlation Between Stock Level & Price

Source : Internal Analysis

AVERAGE USD 627

Inverse Correlation HOLDS TRUE ...

AVERAGE USD 627

7.8 Mil Ton

Actual Dec USD 593(±3%)

End of 2017 Stock

How to BENEFIT ?

5.5

6.0

6.5

7.0

7.5

8.0

450

500

550

600

650

700

750

Apr '17 May '17 Jun '17 Jul '17 Aug '17 Sep '17 Oct '17 Nov '17 Dec '17

Palm Oil Stock (Ton) CPO Mdex Price (USD/ Ton)

2017 Stock Level of Major Countries vs Mdex Price

Source : Internal Analysis, MPOB

Mio TonUSD/ Ton

Stock Building up

≠Inverse Correlation OPPORTUNITY to HEDGE !

Zoom-in Day by Day in Sept 2017Inverse Correlat ion withR-square = 0.8

≠Inverse Correlat ion =

Overprice ?

When Market Overprice, BE ALERT AND READY to Lock Forward

Mio Ton USD/ Ton

550

600

650

700

6

7

8

Aug 15 Sep 13 Oct 16 Nov 15 Dec 15

Major Countries' PalmOil StockCPO Mdex Price

Source : Internal Analysis DATES

th th th th th

Sept 8th was the LAST OPTIMUM TIME to Sell Forward

Future CPO MDEX (4 Months Forward) on Sept 2017

-4.00%

-3.05%

-2.10%

-1.15%

-0.20%

0.75%

Sep '17 Oct '17 Nov '17 Dec '17 Jan '18

INFLECTION POINT

Posit ive Sent iment

Negat ive Sent iment

Fruit Census Predicted Abundant Production in Q4 2017

Source : Internal Analysis

Rumor : Malaysia Stock High (2 Mio Ton )

USD 660

USD 593 Sep '17 Oct '17 Nov '17 Dec '17

Potent ialProfit

Forward 8 September vs Actual Price

When Market Misprice, Take Advantage. But… SHORT WINDOW !

11%

USD 659Forward 08 Sept 2017

Source : Internal Analysis

RECOVERY QUICKER than Expected. Indonesia Productions Exceeded 2015

Indonesia and Malaysia CPO Production

Source : Internal Analysis, MPOB

17

18

19

20

2015 2016 2017

Malaysia Production

30

32

34

36

2015 2016 2017

Indonesia ProductionMio Ton Mio Ton

~14%~15%

THE EQUATOR

Production 2016 vs 2017

0 – 10%

>10%

EQUATOR

N

23%

18%

28%30%

35%

36%

7%

17%

Production 2016 vs 2017

UN-UNIFORM Recovery but EXCEEDED Expectation

Based on Sampling

WATER DEFICIT IMPACTFROM ‘15 & ‘16

6%1%

6%

Low SevereMed

8%

Indonesian Biodiesel Serves as BALANCING FACTOR

Variances of Actual vs Forecast

HIGHER EXPECTEDSUPPLY

HIGHER EXPECTEDDEMAND

Do Government and Industry have AGILITY to ADJUST VOLUME ?

Indonesia Biodiesel Consumption

Source :- Internal Analysis- CPO Fund

Mio KL

7

5

6

4

2

3

1

2015 2016

~3.5

~1.2

2017

~2,8

2017 Available Balance of Fund

USD 850 Mio

2018

.

.

2017“In the Business World, the Rearview Mirror is Always Clearer than Windshield”

-Warren Buffet-

2018Prediction on Global Palm Oil

Supply Demand & Price Outlook

INDONESIAGovernment & Industry

United as One: from Food & Energy Security to Sustainability

Core National Interest : LARGEST EXPORT at Record USD 23 Bio in 2017

Indonesia United as One• Strong Government Mandate under Coordinating

Ministry of Economic Affairs… 2 Years in Operations• Competent Leaders• Ample Balance of Funds

• The Indonesian Oil Palm Estate Fund (CPO Fund/ BPDP-KS)

• Council of Palm Oil Producing Countries (CPOPC)

• Strong Mandate from Indo Malay Government• In Talks on B5 Biodiesel with China (6 Mio KL), India

(2.3 Mio KL), B-7 with Malaysia (1 Mio KL)• Harmonization of Sustainability Standard to UN SDGs

“EU Should End Discriminat ion Against Indonesia’s Palm Oil”

President Jokowi at ASEAN-EU Commemorative Summit, ManilaNovember 14, 2017

FotoDarmin

Nasution

FotoDeputyCPOPC

Dono BoestamiDarmin Nasution

Mahendra Siregar M. Jaaffar Ahmad

Source : State Secretary Republic of Indonesia

3.9

2.6

-

2.5

5.0

Corporate Smallholders

Oil Yield / Ha

(33 %)Potential Additional CPO from Smallholders :

1.3 Ton x 4.6 Mio Ha 6 Mio Ton

Replanting Target :4.6 Mio Ha

25 Year6.8

4.6

-

4.0

8.0

Corporate Smallholders

Planted Area(Mio Ha)

3Ps : People-Profit-Planet ALL BENEFIT

Sustainability Solution : Smallholders’ Replanting

Source: Directorate General of Estate Crops (2016)

185 K Ha/ Year

~

~

~80% of REPLANTING AREA Lies in Sumatra (Older Plantations)

Indonesia’s Potential Smallholders Replanting Areas

32%

10%

10%

10%

8% 5%

4%

4%

4%3%

3%

3%

2%1%

1%

Target of Replant ing2.4 Mio Ha

Source: - Directorate General of Estate Crops (2016)- Internal Analysis

Riau

78% 19% 3%

Target 185 K/Year ACHIEVABLE, Granted these 3 Elements

Replanting with Holistic Ecosystem

Access to Off-takers

IndependentSmallholders

Access to Funding

Massive Land Certification Program (5 Million Certificates, 2017 > Previous 5 Years Combined)

Access to Funding : Gov, CPO Fund & SOEs CPO Fund Allocation Over USD 340 Mio in 2018

Commitment by 26 Off-takers as Guarantors of Entire Value Chain

Key Success Factors

Use Satellite to PREVENT WILDFIRE by Monitoring Hotspots

Indonesia Inc. Made Great Stride in Mitigating Fires

Sources : - Ministry of Environmental and Forestry Republic of Indonesia- California Department of Forestry and Fire Protection (Cal Fire)

2015 2016 2017

0.3

0.2

0.5

2.6

0.4

0.1

0.5

1.5

2.5

Mio Ha

Wildfire

USA

INDONESIA

21,929

3,915 2,339

-

5,000

10,000

15,000

20,000

25,000

2015 2016 2017

Hotspots in Indonesia-NOAA Satellite

Sources : https:/ / data.worldbank.org/ indicator/ AG.LND.FRST.ZSData 2017

No. ofHotspots

EFFECTIVE METHODOLOGY and COMMITMENT Mitigate Wildfire Risks

Why has it Worked ?

Fire Free Village Program

3-Part ies Collaborat ion Model

Clustering SystemHotspot Early Warning System

Prevention•Init iate Fire Free Village Program

•Apply Hotspot Early Warning System and Fire Danger Rating System

Received by Community

Training, Engagement & Incentive

Scaling-up the Model

Ring 3 ( > 3 Km from concession )Ring 2 ( 3 Km from concession )Ring 1 ( inside concession)

“Fire free village program” is the core component of clustering systemGOVERNMENT

CORPORATE COMMUNITY

63149

226

3460.55

1.05

1.35

2.04

0.0

0.5

1.0

1.5

2.0

2.5

0

100

200

300

400

2014 2015 2016 2017

PlantedMio HaCompany

Company Area (Ha)

HARMONIZATION with CPOPC Standard Certification and UN SDGs

Astounding Progress on ISPO

Source: ISPO Commission (2017)

ISPO cert if ied as of 2017:346 companies 2 Mio Ha

CAGR 55%

0.0

0.5

1.0

1.5

2015 2016 2017

Indonesian Deforestat ion Rate 2015 - 2017 Periods

Source: Ministry of Environment and Forestry (2017)

Mio Ha

8.7 Mio Ton CPO

ISPO Cert if icat ion

"Indonesia has reduced deforestat ion mainly due to improvement ingovernment policy in forest management”Minister Sit i Nurbaya at Indonesian Forest & Deforestat ion Workshop, Jakarta,January 29, 2018

.

.

2017“In the Business World, the Rearview Mirror is Always Clearer than Windshield”

-Warren Buffet-

2018“Prophesy is a Good Line of

Business, but it is Full of Risks”-Mark Twain-

INDONESIAGovernment & Industry

United as One: from Food & Energy Security to Sustainability

Do These Extreme Temperatures Increase the Chance of EL NINO/LA NINA

2018 … “America in Deep Freeze as Australia Fries”

New Hampshire Sydney

Financial Times, January 8, 2018

120°C

If the Pattern Repeats itself, Expect MODERATING Weather

Source : NOAA, Ganling 2017-10

JAN JULAPR OCT JAN JULAPR OCT JAN JULAPR OCT JAN JULAPR OCT

2015 2016 2017 2018Prediction

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

‘97 – ’98 El-Nino ‘15 – ’16 El-Nino

El Nino Area

La Nina Area

Neutral

°C (ONI)

Indonesia and Malaysia CPO Production

Source : Internal Analysis, MPOB

16

18

20

22

2015 2016 2017 2018 (F)

Malaysia ProductionMio Ton

30

32

34

36

38

40

2015 2016 2017 2018 (F)

Indonesia ProductionMio Ton

~8%~3%

Indonesia and Malaysia Production Increase around 3.6 MIO TON

EQUATOR

Production 2017 vs 2018 (F)

Based on Sampling

The Last 24 Months, Less Impact of Water Deficit… STRONG PRODUCTION

6%

17%

27%19%

35%

25%

38%

11%

21%

5%10%

N

THE EQUATOR

Production 2017 vs 2018

0 – 10%

>10%

WATER DEFICIT IMPACTFROM ‘16 & ‘17

Low SevereMed

8%

8%

9%

EU Palm Oil Import or ?

2

4

6

8

2013 2014 2015 2016 2017 2018 (F) 2019 (F) 2020 (F) 2021 (F)

Palm BiodieselEffect ively Banned ?

Mio Ton

Expect the Demand Remain BUOYANT in 2018

Source : Oil World2021 (F)

“European Move to Ban Palm Oil From Biofuels is 'CropApartheid' – Malaysia”KUALA LUMPUR, Jan 18 (Reuters) - The plan includes a ban on the use of palmoil in motor fuels from 2021.

China Palm Oil Import Remain Flat

0

5

10

15

20

2011 2012 2013 2014 2015 2016 2017 2018 (F)

China Palm Oil Import China Soy Oil Import & Production

CAGR 6.82%

Potential Additional Demand for Biodiesel around 6 MIO TON (B5)

Mio Ton

Source : Internal Analysis

CAGR -2%

India Palm Oil Import

Despite Multiple Hikes of Import Duty, DEMAND Continue to GROW

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 (F)

Mio Ton

1x Hike Duty

1x Hike Duty

1x Hike Duty

2x Hike DutySource : Internal Analysis

CAGR 5.6%

1x Hike Duty

25

30

35

40

45

50

55

60

65

70

12,900

13,100

13,300

13,500

13,700

13,900

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18

USD vs IDR Crude Oil (Brent)

Forex USD vs Commodity Price

USD/ bblUSD vs IDR

“Obviously a weaker dollar is good for us as it

relates to trade & opportunities”

Despite Weak Dollar Rhetoric, Commodity Price ALREADY PRICED-IN

Source : Bloomberg

Narrower Spread CPO vs Oil Price Leads to LESS FUND Requirement for Biodiesel

Crude Oil & CPO Prices

X

Hypothetical Case :Switching Point from Food to Energy

Oil Price as Floor

USD/ Ton

200

300

400

500

600

700

800

642

482

Feb ‘17

Brent Crude Oil

CPO MDEX

Biodiesel as STABILIZING FACTOR to CPO Price

Indonesia Biodiesel Consumption Projection

Source :- Internal Analysis- CPO Fund

Mio KL

7

5

6

4

2

3

1

2015 2016

~3.5

~1.2

2017

~2,8

2018Total Projected Fund

USD 1,8 Bio*

~5.7

~3.5Target

2018 (F)*Assumptions 2018 : Brent Crude Oil : USD 60 / Barrel Domestic CPO : USD 650 / Ton

=

Growth Rate

SUPPLY(TON)

DEMAND(TON)

2016-17 2017-18

SUPPLY – DEMANDΣ

Source : Internal Analysis (± 0.5 M)= Note

Indonesia +4.5 M +3.0 M

Malaysia +2.6 M +0.6 M

Others +1.3 M +0.5 M

Indonesia +0.3 M +0.9 M

Malaysia +0.2 M +0.2 M

China +0.5 M +0.0 M

India +1.1 M +0.6 M

Europe Union +0.5 M +0.3 M

Others +2.4 M +1.3 M

+3.4 M +0.8 M

Price Would Be USD 600 – 650 in Q3 2018

CPO Supply and Demand Forecast 2018

=

= =

THANK YOU

34

Regression Palm Oil Stock vs Mdex Price

R² = 0.75

450

500

550

600

650

700

4,500,000 5,500,000 6,500,000 7,500,000 8,500,000 9,500,000

Major Countries’ Palm Oil Stock (Ton)

MODERATE Correlation

Mdex (USD/ Ton)

0

20

40

60

80

100

120

-

200

400

600

800

1,000

1,200

1,400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (F)

Global Soybean Ending Stock Soy Oil Price

Soybean Stock and Price

Mio TonUSD/ Ton

Soybean Stock Projected to be FLAT thus Price will be STABLE

Source : USDA, CBOT