GLOBOIL INDIA 201426-28 September 2014

Renaissance Mumbai Convention Centre Hotel

“Emerging Trends In The Edible Oil Sector – A View From Pakistan.”.

By

Abdul Rasheed Janmohammed

Vice Chairman – Pakistan Edible Oil Refiners Association (PEORA)Chief Executive Officer – Mapak Edible Oils (Pvt.) Limited – JV Project

Pakistan-Malaysia.

EDIBLE OIL SCENARIO

• Per Capita Consumption : 17 kgs.

• Total Consumption : Around 3.4 Million Tons.

• Local Production : 0.5-0.7 Million Tons.

• Import of Edible Oils : Around 2.3 Million Tons.

• Oil Extracted from Imported Seeds : Around 0.5 Million Tons.

• Total Import Bill of Edible Oil about US$ 1.8 to 2.0 Billion.

• Total Import Bill of Oilseeds about US$ 0.5 to 0.6 Billion.

Edible Oil Duty Structure – Pak. Rupees / (M.Tons)

Product Import Duty (Malaysia)

Import Duty (Indonesia)

CED I.Tax FED

Olein 7692.50 7692.50 16% 5.5% 1000

RBDPO 9180 9180 16% 5.5% 1000

CPO 6800 6800 16% 5.5% 1000

Product Import Duty CED I.Tax FED

CDSBO 9050 16% 5.5% 1000

After the effectiveness of PTA with Indonesia, the duty structure is now uniform for both Malaysian and Indonesian Origin.

Since there is heavy duty structure and taxes on the import of Edible Oils in Pakistan, I am taking the liberty of quoting the following quotes:

Import of Edible Oils in Pakistan(Basis Arrival) in M.Tons

For January-December 2012, 2013 and January-August 2014

Product 2012 2013 Jan-Aug 2014

OLIEN 752,603 979,308 664,903

RBDPO 749,513 998,619 739,894

CPO 428,352 278,118 58,492

CDSBO 40,500 55,214 90,249

TOTAL 1,970,968 2,311,259 1,553,538

In the year 2013, Pakistan imported 17% more Edible Oil as compared to 2012.

OLIEN RBDPO CPO CDSBO TOTAL0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

752,

603

749,

513

428,

352

40,5

00

1,97

0,96

8

979,

308

998,

619

278,

118

55,2

14

2,31

1,25

9

664,

903

739,

894

58,4

92

90,2

49

1,55

3,53

8

20122013Jan-Aug 2014

IMPORT OF PALM OIL PRODUCTSFROM MALAYSIA AND INDONESIA

DURING JANUARY-DECEMBER 2012 IN M.TONS (BASIS ARRIVAL)

PRODUCT MALAYSIA % INDONESIA

% TOTAL

OLIEN 732,263 97 20,340 3 752,603

RBDPO 275,846 37 473,667 63 749,513

CPO 415,852 97 12,500 3 428,352

1,423,961 506,507

1,930,468

MALAYSIA 74%

INDONESIA 26%

IMPORT OF PALM OIL PRODUCTSFROM MALAYSIA AND INDONESIA

DURING JANUARY-DECEMBER 2013 IN M.TONS (BASIS ARRIVAL)

PRODUCT MALAYSIA % INDONESIA

% TOTAL

OLIEN 864,332 88 114,976 12 979,308

RBDPO 225,374 23 773,245 77 998,619

CPO 224,128 81 53,990 19 278,118

1,313,834 942,211

2,256,045

MALAYSIA 58%

INDONESIA 42%

IMPORT OF PALM OIL PRODUCTSFROM MALAYSIA AND INDONESIA

DURING JANUARY-AUGUST 2014 IN M.TONS (BASIS ARRIVAL)

PRODUCT MALAYSIA % INDONESIA

% TOTAL

OLIEN 309,630 47 355,273 53 664,903

RBDPO 77,623 11 662,271 89 739,894

CPO 58,492 100 0 0 58,492

445,745 1,017,544

1,463,289

MALAYSIA 30%

INDONESIA 70%

PERCENTAGE OF PALM OIL PRODUCTSFROM MALAYSIA AND INDONESIA IMPORTED

DURING JAN-DEC 2012,2013 AND JAN-AUG 2014 IN M.TONS (BASIS ARRIVAL)

YEAR MALAYSIA % INDONESIA %

2012 70 26

2013 58 42

JAN-AUG 2014 30 70

2012 2013 JAN-AUG 2014 0

10

20

30

40

50

60

70

80

70

58

30

26

42

70

MALAYSIA % INDONESIA %

IMPORT OF CRUDE PALM OIL (CPO)FROM MALAYSIA AND INDONESIA

DURING JAN-DEC 2012, 2013 AND JAN-AUG 2014 IN M.TONS (BASIS ARRIVAL)

YEAR QUANTITY IN M.TONS

2012 428,352

2013 278,118

Jan-Aug 2014 58,492

428,352

278,118

58,492

QUANTITY IN M.TONS

20122013Jan-Aug 2014

The import of CPO into Pakistan is gradually coming down. The main reasons are the most aggressive prices of RBD Palm Oil being offered from Indonesia and the Export Duty imposed at the origin on CPO. This export duty structure is practically shutting down the Refineries in Pakistan.

The decision of Malaysian Government to impose 4.5% Export Duty on CPO over and above MDEX level of RM 2250, has changed the entire complex for the Edible Oil Refineries in Pakistan.

Pakistan entrepreneurs invested huge amount in the Physical Refining Plants and now they all are suffering as the dependency was on the Crude Palm Oil as the basic raw material.

We are not as fortunate as our Indian friends who convinced their Government to increase the duty on the refined products from 7.5% to 10% when CPO was not workable due to the export duty.

This Export Tax on CPO has not only affected the Pakistan Refiners but have also reduced the export quantum of Malaysian origin which is very well reflected from the export numbers.

Since Pakistan is unable to import CPO due to Export Duty imposed at the origins and higher duty at the destination, I am

taking the liberty of following quote:

Paying tax should be framed as a glorious civic duty worthy of

gratitude – not a punishment for making money.

Alian De Botton

Production of Major Oil Seeds Crop

2011-2012 Production

2012-2013 Production

2013-2014 (P)

Oil Seed Oil Oil Seed Oil Oil Seed Oil

Cotton Seed

Rape Seed

Sunflower

Canola

Total

Source : Pakistan Oil Seed Development Board / Economic Survey of Pakistan.

636 567 606

3212 385 3324 400 3592 431

202 61 216 66 218 68

473 179 244 95 265 101

30 11 16 6 16 6

(000 Tons) (000 Tons) (000 Tons) (000 Tons) (000 Tons) (000 Tons)

Product Import Duty

FED Sales Tax Adv. I.Tax

Canola / Rapeseed 1 % Rs. 400 PMT 16 % 6 %

Sunflower Seed 1 % Rs. 400 PMT 14 % 6 %

Soybean Seed 1 % - 17 % 6 %

Oil Seed Duty Structure – Pak. Rupees / (M.Tons)

Import of Oil Seeds in Pakistan(Basis Arrival) in M.Tons

For January-December 2012, 2013 and Jan-Aug 2014

Product 2012 2013 Jan-Aug 2014

Rapeseed / Canola 713,828 543,384 778,520

Sunflower 10,572 185,985 37,957

Soyabean Seed 0 0 9094

Total 724,400 729,369 825,571

This Table will reflect that till August 2014, Pakistan already received quantity of 825,571 MT Oilseeds which is more than what we used to import in the entire year.

Rapeseed / Canola Sunflower Soyabean Seed Total0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

713,

828

10,5

72

0

724,

400

543,

384

185,

985

0

729,

369

778,

520

37,9

57

9,09

4

825,

571

20122013Jan-Aug 2014

OILSEEDS TSUNAMI IN PAKISTAN

• Pakistan extremely overbought Oilseeds in the year 2014 as if there will be no Oilseeds available in the World in coming years.

• Quantity of 825,571 MT already arrived till to-date which is higher than the average import per annum of 725,000 MT.

• For the remaining part of the year, according to the rough estimate, Pakistan have imported another around 400,000 MT (Black Sea Rapeseed and Sun Seed) till the end of the year shipments which will make our import for the year 2014 around 1.2 million ton.

• This huge import has not only raised logistic issues but have also affected the market very badly.

• While it was an extremely wrong planning on the part of our importers, they were perhaps misguided by a recent experience in the first quarter of 2014 when supply of Canola Seed was extremely difficult from Canada due to their logistical problem. However, Oilseed Industry perhaps underestimated the huge production in the Black Sea area and were under impression that Ukraine problem will multiply.

• This Oilseed Tsunami will have very negative effects on the Oilseed Industry at least till December 2014.

MARKET FACTSLet us see where the Market could head on the basis of following facts:

1. Malaysian Palm Production was 19.21 (M) tons in 2013 against 18.80 (M) tons in 2012 and expected to be 19.75 (M) tons in 2014.

2. Indonesian Palm Production was around 27.00 (M) tons in 2013 against around 26.50 (M) tons in 2012. and expected to be around 30.00 (M) tons in 2014. (Indonesian figures can never be accurate as no official data available).

3. US Soyabean Crop was around 89.50 (M) Tons in 2013 against 82.60 (M) Tons in 2012 and expected to be around 106.00 (M) in 2014.

4. Argentina Soyabean Crop was around 55.20 (M) Tons in 2013 against 49.10 (M) Tons 2012 and expected to be around 55.50 (M) Tons in 2014,

5. Brazilian Soyabean Crop was 86.00 (M) Tons in 2013 against 82.50 (M) Tons 2012 and expected to be around 93.00 (M) Tons in 2014.

6. Malaysian Stocks of Palm Oil in August 2014 were 2.05 (M) Tons.

7. Indian import was 10.34 million tonnes of edible oil during 2012-13 against 9.98 million tonnes in 2011-12 and expected to be around 10.50 (M) Tons in 2013-14.

8. The year 2014 has been very vulnerable year for all Edible Oils. With due respect, all forecasts did not proved right as perhaps everyone under estimated the supplies. The highest we have seen on MDEX was RM 2916 on 11th March 2014 and the lowest we have seen was RM 1914 on 2nd September 2014 i.e. the variation of 34% during Jan-Sep. All the Bulls were expecting El nino to come but perhaps it did not materialized and so far the Bears win the race.

9. The Oilseed Crop of Rapeseed and Sunflower Seed has been extremely good in the year 2014 particularly in the Black Sea region. This huge crop combined with extremely huge crop of Soybean put enormous pressure in the market.

10. Crude Oil performance was rather steady inspite of various geographical problems. Crude Oil prices did not go up which perhaps did not give opportunity to Edible Oils to find home in the Bio diesel Industry.

11. Since the threshold price of RM 2250 was broken, Export Duty was exempted by Malaysian Government for the Export of Crude Palm Oil. This has enabled Malaysia to have better export numbers.

12. Since production is multiplying in Indonesia, this origin will not only remain very competitive but will be an aggressive seller in terms of quantity particularly for Refined Palm Oil. Pakistan is perhaps the safe home for Indonesian Refined Palm Oil and this is the reason that prices of RBD Palm Oil remain much lower as compared to Olien for Indonesian origin. This will put additional pressure on the prices of PFAD as well being by-product of RBD Palm Oil.

The market facts being deliberated do give us certain direction. In the current year 2014 most forecasts proved incorrect as supply remained extremely large and exceeded all expectations.

While there is no doubt that supply still remain huge particularly of Soya Oil and Oilseeds, there is a general belief that prices have already come down a lot. Palm Oil prices have slide too much more in sympathy of Soft Oils rather than its own fundamentals. We have seen in past that Malaysia have the capacity to take care of their 2.00 million tons stocks without any problem, but this year even at the stocks of 1.6 million tons, markets were coming down purely on sentiments.

After observing huge increase in production figures in the month of August 2014, there is a perception that September production figures of Palm in Malaysia will not be very good. We will now be entering into the low production months commencing from November 2014.

Based on the above market facts, it is my belief that Palm prices may not go below RM 2000 and has the potential to go upto RM 2250 by December 2014.

For the first quarter 2015, I feel market has the potential of even improving better than the last quarter of 2014.

FORECAST

I would like to conclude my Presentation with famous quotes :

Thank You