The Outlook for Vegetable Oil Markets - MPOC...1997 1999 2001 2003 2005 2007 2009 2011 2013 2015...

©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


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.


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


This growth in demand for vegetable oils from biodiesel has particularly benefited CPO.

0

10

20

30

40

50

60

70

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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300

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900

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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.


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


… supported by use in South East Asia where CPO prices were at a discount to crude oil...

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-100

0

100

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CP

O P

rem

ium

ove

r B

ren

t, U

S $

pe

r to

nn

e

Cif Rott FOB Belawan


… and in Indonesia where, with export taxes, CPO has been a cheap fuel source.

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-100

0

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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


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



1,300

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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



The same relationship hold for the Palm Kernel Oil (PKO) premium over Brent.

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550

-300

0

300

600

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1,200

1,500

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


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


5 year average, ‘000 tonnes

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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.


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


Unsubsidised Indonesian exports of biodiesel have, also, become uncompetitive.

0

15

30

45

60

75

90

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150

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525

Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

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


EU spreads between other oils and CPO prices are low, making it hard to capture other price-sensitive markets.

0

50

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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


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.

0.5

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65%

70%

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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


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



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


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


Maraming salamat po! www.lmc.co.uk

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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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The Outlook for Vegetable Oil Markets - MPOC...1997 1999 2001 2003 2005 2007 2009 2011 2013 2015...

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