©LMC International, 2015 1 19/03/2015
The Outlook for Vegetable Oil Markets Presentation to POTS Manila Dr Julian Conway McGill 6th of August, 2015
©LMC International, 2015 2 19/03/2015
Overview: vegetable oils trade in a price band the floor of which is set by crude oil prices.
I am going to start today’s presentation with a reminder of how, when analysing the prices of vegetable oils, the most important factor one must understand is the link between palm oil and crude oil prices.
I hope to convince you that, as a result, we need to pay particular attention to the relationship between the stocks of palm oil and its premium over crude oil. The current fall in the crude oil price, has not altered this fact. Instead, it means that as stocks accumulate in September, palm oil will have to work very hard to price itself into the market.
This will also have an impact on vegetable oil consumption in the Philippines, by increasing the competitiveness of palm oil against coconut oil.
©LMC International, 2015 3 19/03/2015
A remarkable share of the world’s vegetable oils are now used as biofuels.
0%
5%
10%
15%
20%
25%
30%
35%
2000 2002 2004 2006 2008 2010 2012 2014
% o
f w
orl
d o
utp
ut
use
d in
bio
fuel
s
Total oils Rapeseed oil Soy oil Palm oil
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This growth in demand for vegetable oils from biodiesel has particularly benefited CPO.
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10
20
30
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1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Mil
lio
n T
on
ne
s
Soybean Oil Palm Oil Rapeseed Oil
Sunflower Oil Palm Kernel Oil Coconut Oil
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Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Ve
ge
tab
le a
nd
Cru
de
Oil
s (U
S$
ton
ne
)
Crude Palm Oil Soybean Oil Rapeseed OilSunflower Oil Brent Crude Oil
Since 2007, vegetable oil prices have moved in a band above petroleum prices.
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While EU CPO prices have, on a daily basis, fallen below crude, the floor has held…
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Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15
CP
O P
rem
ium
ove
r B
ren
t, U
S $
pe
r to
nn
e
Cif Rott
©LMC International, 2015 7 19/03/2015
… supported by use in South East Asia where CPO prices were at a discount to crude oil...
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0
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Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15
CP
O P
rem
ium
ove
r B
ren
t, U
S $
pe
r to
nn
e
Cif Rott FOB Belawan
©LMC International, 2015 8 19/03/2015
… and in Indonesia where, with export taxes, CPO has been a cheap fuel source.
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0
100
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400
Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15
CP
O P
rem
ium
ove
r B
ren
t, U
S $
pe
r to
nn
e
CIF Rotterdam FOB Belawan FOB Belawan-Export Tax
©LMC International, 2015 9 19/03/2015
The CPO premium over petroleum moves in the opposite direction to stocks.
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Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
MP
OB
Pa
lm O
il Sto
cks, '000 ton
ne
sEU
pre
miu
m o
ver
Bre
nt
, US
$ p
er
ton
ne
CPO Premium over Brent Average CPO Premium MPOB Stocks
©LMC International, 2015 10 19/03/2015
The CPO premium over petroleum moves in the opposite direction to stocks.
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MP
OB
Pa
lm O
il Sto
cks, '000 ton
ne
sEU
pre
miu
m o
ver
Bre
nt
, US
$ p
er
ton
ne
CPO Premium over Brent Average CPO Premium MPOB Stocks
©LMC International, 2015 11 19/03/2015
The CPO premium over petroleum moves in the opposite direction to stocks.
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MP
OB
Pa
lm O
il Sto
cks, '000 ton
ne
sEU
pre
miu
m o
ver
Bre
nt
, US
$ p
er
ton
ne
CPO Premium over Brent Average CPO Premium MPOB Stocks
©LMC International, 2015 12 19/03/2015
The CPO premium over petroleum moves in the opposite direction to stocks.
1,300
1,500
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OB
Pa
lm O
il Sto
cks, '000 ton
ne
sEU
pre
miu
m o
ver
Bre
nt
, US
$ p
er
ton
ne
CPO Premium over Brent Average CPO Premium MPOB Stocks
©LMC International, 2015 13 19/03/2015
The same relationship hold for the Palm Kernel Oil (PKO) premium over Brent.
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Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
EU
PK
O p
rem
ium
ove
r B
ren
t, U
S $
/to
nn
e
PK
O +
oil in
PK
stocks,
'000 ton
ne
s
EU PKO premium over Brent Stocks
©LMC International, 2015 14 19/03/2015
CPO output has its own seasonality, increasing after Ramadan, when demand also declines.
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1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Mon
thly
Mal
aysi
an o
utpu
t, m
illio
n to
nnes
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5 year average, ‘000 tonnes
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1,000
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2,000
2,500
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5-ye
ar a
vera
ge o
f mon
thly
pal
m o
il pr
oduc
tion,
'000
tonn
es
Stock Production
This translates into higher stocks towards September, which will need to find a market.
©LMC International, 2015 16 19/03/2015
At present, the CPO premium over Brent is too high to stimulate additional demand.
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Jun-11 Jun-12 Jun-13 Jun-14 Jun-15
CP
O p
rem
ium
vs.
Bre
nt U
S$
per t
onne
EU FOB Indonesia Malaysia With $50 export tax
©LMC International, 2015 17 19/03/2015
Unsubsidised Indonesian exports of biodiesel have, also, become uncompetitive.
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525
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PM
E price-sensitive market exports '000 m
tFO
B S
E A
sia
PM
E pr
emiu
m v
s. g
asoi
l, $/
mt
Premium Price-sensitive exports Chinese imports a month later
©LMC International, 2015 18 19/03/2015
EU spreads between other oils and CPO prices are low, making it hard to capture other price-sensitive markets.
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Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15
EU p
rem
ium
ove
r C
PO
pri
ce, U
S$
per t
onne
Soybean oil Rapeseed oil Sunflower oil
©LMC International, 2015 19 19/03/2015
You can see how India, the world’s biggest oils importer, is very sensitive to the CPO discount on soy oil in its balance of imports.
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0.6
0.65
0.7
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65%
70%
75%
80%
85%
90%
95%
100%
105%
1993-94 1996-97 1999-00 2002-03 2005-06 2008-09 2011-12 2014-15
Palm
% of Total O
il Imports, N
ov-Oct YearC
IF P
alm
Oil
Pri
ce a
s %
of S
oy O
il P
rice
CIF CPO/SBO Prices Palm Oil % of Indian Imports
©LMC International, 2015 20 19/03/2015
Returning to our diagram of stocks vs. the CPO premium vs. Brent, you see why we are bearish on the premium later this year.
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MP
OB
Pa
lm O
il Sto
cks, '000 ton
ne
sEU
pre
miu
m o
ver
Bre
nt
, US
$ p
er
ton
ne
CPO Premium over Brent Average CPO Premium MPOB Stocks
©LMC International, 2015 21 19/03/2015
This means that palm olein will move to a greater discount against CNO, stimulating imports into the Philippines.
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Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
EU
CN
O p
rem
ium
ove
r RB
D o
lein
($/ton
ne
)
Ph
ilip
pin
e m
on
thly
im
po
rts
('000
to
nn
es)
Philippine imports of palm oil from Malaysia EU CNO premium vs. olein
©LMC International, 2015 22 19/03/2015
This is in line with a longer run trend in which CNO is increasingly replaced by palm oil.
20%
40%
60%
80%
100%
120%
140%
160%
1990 1993 1996 1999 2002 2005 2008 2011
Sh
are
of
CN
O i
n v
eg
eta
ble
oil
co
nsu
mp
tio
n
an
d C
NO
/Pa
lm O
lein
pri
ce r
ati
o
Share of CNO in total vegetable oil consumption in the PhilippinesCNO palm olein price ratio
©LMC International, 2015 23 19/03/2015
Maraming salamat po! www.lmc.co.uk
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©LMC International, 2015 24 19/03/2015
This presentation and its contents are to be held confidential by the client, and are not to be disclosed, in whole or in part, in any manner, to a third party without the prior written consent of LMC International.
While LMC has endeavoured to ensure the accuracy of the data, estimates and forecasts contained in this presentation, any decisions based on them (including those involving investment and planning) are at the client’s own risk.
LMC International can accept no liability regarding information analysis and forecasts contained in this presentation.
© LMC International, 2015 All rights reserved
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