ganling 6th cioc, guangzhou, 12-13 nov 20111 global palm oil supply and demand dynamics and price...

1 Ganling 6th CIOC, GUANGZHOU, 12-13 NOV 2011

GLOBAL PALM OIL SUPPLY AND DEMAND DYNAMICS AND

PRICE OUTLOOK 2012

BY

A. H. LINGGANLING SDN BHD

2 Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

TODAY’S PRESENTATION

FOCUS ON KEY PALM OIL SUPPLY AND DEMAND DYNAMICS AND ITS LIKELY IMPACT ON PRICE TRENDS

1. GLOBAL PALM OIL PRODUCTION AND SUPPLY SCENARIO

2. WEATHER CHANGES AND PALM OIL SUPPLY

3. BIODIESEL - EMERGING DRIVER IN THE DEMAND EQUATION OF EDIBLE OILS

4. PRICE OUTLOOK 2012


GLOBAL PALM OIL PRODUCTION – DYNAMIC SUPPLY GROWTH

FASTEST GROWING EDIBLE OIL IN THE WORLD AVG GROWTH OF 7.8% PER ANN (SOYBEAN OIL: 4.8%) LOWER GROWTH IN 2009-10, DUE MAINLY TO ADVERSE

WEATHER CONDITIONS

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

24.0 25.428.3

31.234.0

37.3 38.8

43.345.1 45.8

49.7

PALM OIL PRODUCTION GROWTH % YOY

PA

LM

OIL

(M

n T

)

Gro

wth

Y-O

-Y %

Source: Oil World 2011

AVG GROWTH: 2.5 MN T PER ANNUM )

4

GLOBAL PALM OIL PRODUCTION –KEY PRODUCING COUNTRIES

Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

GROWTH IS CONCENTRATED MAINLY IN SOUTH-EAST ASIA (89%) INDONESIA + MALAYSIA = 85% OF WORLD’S PRODUCTION INDONESIA IS THE LARGEST PRODUCER WITH 48% AND

FOLLOWED BY MALAYSIA (37%) INDONESIA OVERTOOK MALAYSIA AS THE LARGEST PRODUCER IN

2007 AND LARGEST EXPORTER IN 2009 THAILAND IS THE 3RD LARGEST PRODUCER (3%)

INDONESIA

MALAYSIA

THAILAND

NIGERIA

COLOMBIA

ECUADOR

OTHERS

0.0 10.0 20.0 30.0 40.0 50.0 60.0

48.3

37.3

3.2

1.9

1.6

0.8

6.9Source: Oil World 2011


RAPID AREA EXPANSION BOOSTS GLOBAL PALM OIL PRODUCTION AND SUPPLY

Malaysia : 3.4-4.8 mn ha Indonesia : 4.1-7.6 mn ha

Production Growth

Malaysia : 5% pa Indonesia: 11% pa

Malaysia: negative growth for two consecutive years, 2009 (-1%) and 2010 (-3%)

Indonesia: still positive growth in 2010 (+4.8%)

Sig. shift in the supply epicentre to Indonesia

Sig. impact on the supply and trade of palm oil in the world

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

-

5.0

10.0

15.0

20.0

25.0

AREA EXPANSION AND CPO PRO-DUCTION OF INDONESIA AND

MALAYSIA

HA-MYS HA-IDNCPO-MYS CPO-IDN

PL

AN

TE

D A

RE

A (

Mn

Ha

)

CP

O P

RO

DU

CT

ION

(M

n T

)

Sources: MPOB, GAPKI


PALM OIL SUPPLY DYNAMICS TO CHANGE STRUCTURALLY MOVING FORWARD?

ERA OF RAPID AREA EXPANSION MAY BE ENDINGMalaysia new planting : 2-4% (y-o-y ) since 2000Indonesia new planting : 3-4% (y-o-y) since 2009

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

-

1.00

2.00

3.00

4.00

5.00

6.00

-

2.00

4.00

6.00

8.00

10.00

12.00

PLANTING IN MALAYSIA HAS SLOWED DOWN

PLANTED OIL PALM AREAGROWTH %Y-O-Y

PL

AN

TE

D H

A -

MN

GR

OW

TH

-YO

Y %

Source: MPOB

2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.000

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

PLANTING IN INDONESIA START TO SLOW DOWN

PLANTED OIL PALM AREA

GROWTH % YOYP

LA

NT

ED

HA

(M

n)

GR

OW

TH

YO

Y %

Source: Gapki, Ganling estimates


SLOWER AREA EXPANSION TO IMPACT GLOBAL PALM OIL SUPPLY GROWTH

TABLE 1: NEW PLANTING OF 9 MAJOR PLANTATION COMPANIES FROM INDONESIA

2006 2007 2008 2009 2010

PLANTED HA 73,650 129,536 206,464 162,834 117,964

% Y-O-Y 75.9 59.4 (21.1) (27.6)

SOURCE: COMPANY DATA

COMPANIES STUDIED: FIRST RESOURCES, BW PLANTATIONS, AALI, WILMAR, SAMPOERNA AGRO, LONSUM, KAGRI, IFAR,GAR

NEW PLANTINGS IN INDONESIA HAVE SLOWED DOWN CONSIDERABLY SINCE 2009

SLOW-DOWN DUE TO: STRINGENT STATUTORY AND SUSTAINABILITY REQUIREMENTS AND A TWO -YEARS GOVERNMENT MORATORIUM ON FOREST AND PEATLAND CONVERSION- starting from 2011

SLOWER AREA EXPANSION IN INDONESIA FROM 2009 ONWARD WILL STRUCTURALLY CAP THE SUPPLY GROWTH OF PALM OIL FROM

2015


WEATHER CHANGES AND ITS EFFECTS ON PALM OIL SUPPLY

WEATHER IS ONE OF KEY DRIVERS IN THE SUPPLY EQUATION OF VEGETABLE OILS INCLUDING PALM OILS AND AN IMPORTANT CATALYST TO PRICE MOVEMENT

PAST, CURRENT AND EMERGING WEATHER PHENOMENA LIKE EL NINO AND LA NINA HAVE BEEN KNOWN TO HAVE SIGNIFICANT IMPACT ON GLOBAL PRODUCTION AND SUPPLY OF OILSEEDS AND PALM OIL

USE OF WEATHER-BASED YIELD FORECASTING AND PALM OIL SUPPLY FORECAST


HOW ADVERSE WEATHER CONDITIONS AFFECT PALM OIL PRODUCTION?

PROLONGED DRY CONDITIONS

8 T0 20 WEEKS DRY: FREQUENTLY REFER TO AS EL NINO INDUCED DROUGHT – caused moisture stress in palms

CAN AFFECT PRODUCTION: SOME 4-6 MTHS (bunch failure), 10-12 MTHS (floral abortion) AND 22-

24 MTHS (sex differentiation) AFTER ITS OCCURRENCE - lagged effect on production

CAN REDUCE PRODUCTION UP TO 30% OF NORMAL - DEPENDING ON SEVERITY

EFFECT OF LOW OR DELAYED RAINFALL ON OILSEEDS IS MORE IMMEDIATE AND SEVERE


IMPACT OF WET WEATHER ON PALM OIL PRODUCTION

PROLONGED WET CONDITIONS

8 TO 16 WEEKS OF HEAVY RAINFALL: SOMETIME REFER TO AS LA NINA INDUCED RAINS

CAN AFFECT PRODUCTION: IMMEDIATELY – disruption of harvesting and logistics, SOME 5-6 MTHS

AFTER ITS OCCURRENCE – poor pollination and fruit-sets - lagged effect on production

CAN REDUCE PRODUCTION: UP TO 15% OF NORMAL IN SEVERE LA NINA EVENT

MILD TO MODERATE LA NINA EVENTS ARE BENEFICIAL TO PALMS AND ARE USUALLY ASSOCIATED WITH HIGH

PALM OIL PRODUCTION CYCLE


0

200

400

600

800

1000

1200

Jan

Ap

r

Ju

l

Oct

Jan

Ap

r

Ju

l

Oct

Jan

Ap

r

Ju

l

Oct

Jan

Ap

r

Ju

l

Oct

Jan

Ap

r

Ju

l

Oct

RA

INF

AL

L (M

M)

MONTH/YEAR

0906 07 0805

3M -DRY

4M -WET

3M -WET

-

2,000

4,000

6,000

8,000

10,000

12,000

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

MONTH/YEAR

MT

/M

ACTUALPOTENTIAL

0706 0 0905

LAGGED EFFECT OF RAINFALL ON FFB PRODUCTION

WEATHER-BASED FFB YIELD FORECASTING

12

EFFECTS OF EL NINO AND LA NINA ON CPO PRODUCTION IN MALAYSIA

Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

CPO YIELD CAN DECLINE UP TO 17% IN THE YEAR IMMEDIATELY FOLLOWING THE START OF AN EL NINO EVENT

LA NINA IS USUALLY ASSOCIATED WITH A SHARP INCREASE OF CPO PRODUCTION (V-SHAPED RECOVERY)

A SHARP RECOVERY IN PALM OIL YIELD IN 2011 IS FORECASTED

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

ONI SEVERITY INDEX : EL NINO >1.0, LA NINA> -1.0

CPO PRODUCTION (MT/HA)

ON

I SE

VE

RIT

Y IN

DE

X

CP

O P

RO

DU

CT

ION

(M

T/H

A)

-10.4% 13.3% -4.2% -16.8% -2.5% -5.9%

SOURCES: MPOB, NOAA, GANLING ESTIMATE


PAST, CURRENT AND EMERGING WEATHER - POSITIVE FOR PALM OIL SUPPLY IN 2012?

Jan-0

9

Mar

-09

May

-09

Jul-0

9

Sep-0

9

Nov-09

Jan-1

0

Mar

-10

May

-10

Jul-1

0

Sep-1

0

Nov-10

Jan-1

1

Mar

-11

May

-11

Jul-1

1

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

OC

EA

NIC

NIN

O IN

DE

X (

ON

I)

SOURCE: NOAA CPC

Wet to neutral weather conditions in the previous 16 months unlikely to have any significant adverse effect on palm oil production in 2012

BOM, Australia and NOAA, USA predicted the re-emergence of La Nina

from now till 1st Q 2012 in the equatorial pacific basin - unlikely to pose a weather risk to palm oil production in 2012

Concerns that the emerging La Nina may lead to excessive dryness in South America and rains in North America – weather risk to soyabean

Re-emerging La Nina in 1st

Q 2012

EL NINO

LA NINA


PALM OIL SUPPLY FORECASTS FOR 2011-12

KEYPRODUCER

YEAR CPO(Potential)Mn tonnes

CPO(Forecast) Mn tonnes

CHANGES (Y-O-Y)

Mn tonnes

MALAYSIA 2010 17.9 16.9 (A) -0.5 (-3.2%)

2011(f) 18.4 18.0 1.1 (+6.5%)

2012(f) 18.8 18.4 0.4 (+2.2%)

INDONESIA 2010 23.3 21.9 (A) 1.0 (+4.8%)

2011(f) 24.9 23.7 1.8 (+8.2%)

2012(f) 26.7 26.0 2.3 (+9.7%)

TOTAL 2011(f)2012(f)

43.345.5

41.744.4

2.9 (+7.5%) 2.7 (+6.5%)

according to weather-based yield forecasting model


SUPPLY OUTLOOK FOR 2011/12

Palm oil production in 2011 are expected to recover fairly strongly aided by the La Nina. A sharp recovery of production was observed in the 2nd Q and 3rd Q 2011

The 22-24 months lagged effect of the last El Nino will again be felt in the last Q 2011 or early 2012 and will result

in a short term decline in palm production in both Malaysia and Indonesia

Forecast 2011 - Malaysia : 18.0 Mn T (up 6.5% y-o-y) and Indonesia : 23.7 Mn T (up 8.2% y-o-y). Total supply growth for both countries in 2011: 2.9 Mn T (7.5%)

Forecast 2012 - With good rainfall from mid-2010 to mid-2011 and the last residual El Nino effect ending in last Q 2011, the palm oil production and supply is expected to resume its normal growth in 2012 – an increase of 2.7 Mn T (6.5% y-o-y) is forecasted and with growth

coming mainly from Indonesia


IMPACT OF SUPPLY RECOVERY ON PALM OIL ON PRICES

BIODIESEL DEMAND GROWTH TO DRIVE VEGETABLE OIL PRICES

PALM OIL PRICE OUTLOOK


0

500

1000

1500

2000

2500

3000

3500

4000

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

CP

O P

RIC

ES

(R

M/M

T)

EL NINO AND PALM OIL PRICES

1997-98 2002-03 2006-07

2009-10

EL NINO EVENT IS USUALLY FOLLOWED BY A SPIKE IN PALM OIL PRICES (UP 15% -125% )

RECENT 2009-10 EL NINO: PRICE UP BY 70% TO PEAK AT RM 3962 PMT IN FEBRUARY 2011


MALAYSIAN PALM OIL STOCKS AND CPO PRICES – INVERSE

RELATIONSHIP

STOCK INCREASE TO ABOVE 2.0 MN TONNES IN SEP 2011 DUE TO STRONG SUPPLY RECOVERY - PRESSURING ON CPO PRICES

PRICES DID NOT COLLAPSE DUE TO LINKAGE TO ENERGY SECTOR AND NEW DEMAND DRIVER- BIODIESEL

3871

8

3880

8

3889

9

3899

1

3908

3

3917

3

3926

4

3935

6

3944

8

3953

9

3963

0

3972

2

3981

4

3990

4

3999

5

4008

7

4017

9

4026

9

4036

0

4045

2

4054

4

4063

40

500

1000

1500

2000

2500

0

500

1000

1500

2000

2500

3000

3500

4000

4500

PALM OIL STOCK (LHS) CPO PRICES (RHS)PA

LM

OIL

ST

OC

K (

MT

)

CP

O P

RIC

ES

(R

M/M

T)


BIODIESEL–EMERGING DRIVER FOR VEGETABLE OILS DEMAND

2008 2009 2010 2011E0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

MANDATED BIODIESEL DEMAND GROWTH

EU SOUTH AMERICA USA SE ASIA

BIO

DIE

SE

L(

MN

T)

SOURCE: OIL WORLD,OSK RESEARCH 2011

BIOFUEL FOR ENERGY SECURITY BESIDES ENVIRONMENTAL NEEDS BIODIESEL DEMAND INCREASING STEADILY SINCE 2008 INCREASINGLY USE IN MANDATORY BLENDS – EU, BRAZIL (6%) ,

ARGENTINA (7%) , USA (RFS2)


CPO PRICES LINKED TO CRUDE OIL PRICES SINCE 2007

Based on LMC study, price linkage within a band CPO usually premium to world’s crude oil prices Price differential: - USD 22/barrel to +USD 93 per barrel

1/13

/200

6

3/24

/200

6

6/2/

2006

8/11

/200

6

10/2

0/20

06

12/2

9/20

06

3/9/

2007

5/18

/200

7

7/27

/200

7

10/5

/200

7

12/1

4/20

07

2/22

/200

8

5/2/

2008

7/11

/200

8

9/19

/200

8

11/2

8/20

08

2/6/

2009

4/17

/200

9

6/26

/200

9

9/4/

2009

11/1

3/20

09

1/22

/201

0

4/2/

2010

6/11

/201

0

8/20

/201

0

10/2

9/20

10

1/7/

2011

3/18

/201

1

5/27

/201

1

8/5/

2011

-50

0

50

100

150

200

CPO PRICES CRUDE OIL PRICESPRICE DIFFERENCES:CPO vs CRUDE

PR

ICE

S (

US

D P

ER

BA

RR

EL

)


PRICE OUTLOOK CONFERENCE, KL in March 2011 – we forecasted:

FCPO PRICES MAY HAVE PEAKED AT 3967 PMT IN FEB 2011

FCPO PRICES UNDERGOING CORRECTIONS, RETRACING TO RM 3400 AND MAY TRADE

BETWEEN RM 3200-3800 PMT UNTIL MAY/JUNE 2011

PRICES MAY THEN RETRACE FURTHER TO RM 2700 PMT LEVEL TOWARDS 2ND HALF 2011

2011(F): AVG CPO PRICE OF RM 3100 PMT (2010: RM 2748 PMT)

Above forecasts have been partially fulfilled and will still hold true in the last Q 2011 with minor adjustments – average for 2011: RM 3200 PMT


RECENT FCPO PRICE TREND AND PRICE OUTLOOK - 2012

PRICE SPIKE FOLLOWING EL NINO INDUCED SUPPLY TIGHTNESS-PEAK IN FEB 2011 @RM3962 PMT (USD 1020)

PRICES FELL BY 30% TO RM 2762 PMT(USD 920) FOLLOWING STRONG SUPPLY RECOVERY AND CONCERNS ON EU AND US ECONOMIC WOES

PRICE OUTLOOK 2012: MAY BE VOLATILE AND TRADE BTW RM 2500 -3400 PMT (USD 800-1100)


CONCLUDING REMARKS1. THE RESIDUAL EFFECT OF THE LAST EL NINO (22-24 MTHS AGO) WILL

BE FELT AGAIN IN THE LAST Q 2011 AND EARLY 2012 - SHORT TERM DECLINE IN PRODUCTION AND MAY PROVIDE SOME SUPPORT TO PRICES IN THE NEAR TERM

2. MINIMAL WEATHER RISK TO PALM OIL PRODUCTION IN 2012 - PAST AND EMERGING WEATHER ARE FAVORABLE AND POSITIVE FOR PALM OIL SUPPLY

3. INCREASING DEMAND FROM BIODIESEL MANDATES - EMERGING DRIVER FOR DEMAND GROWTH

4. CPO PRICES IN 2012 MAY BE VOLATILE AND TRADE BETWEEN RM 2500-3400 (USD 800–1100) PMT WITH AN AVERAGE SIG. LOWER THAN 2011(E) OF RM 3200 OR USD 1030 PMT

5. PRICES MAY BE CAPPED BY ADEQUATE SUPPLY OF CPO IN 2012 AND WEAKER ECONOMIC GROWTH WORLDWIDE

6. PRICE UPSIDE WILL DEPEND ON WEATHER RISK ON SOYBEAN PRODUCTION IN NORTH AND SOUTH AMERICA IN THE COMING SEASON


Thank you

By: A.H.LING , Director, Ganling Sdn Bhd, Sandakan, Malaysia

Email: [email protected]

Disclaimer:

The author has endeavored to ensure the accuracy of the data, estimates and forecasts contained in this presentation. The views expressed in no way shall be construed as guidance to trade. The author accepts no liability regarding information and forecast contained in this presentation.

Acknowledgements: MPOB, Bursa Malaysia, IPOB, Oil World, OSK Research Sdn Bhd, Plantation Companies (for rainfall data), Bureau of Meteorology Australia and NOAA, USA

ganling 6th cioc, guangzhou, 12-13 nov 20111 global palm oil supply and demand dynamics and price...

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