In preparing this research, we did not take into
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slide1. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. Please see disclaimer. Palm oil price outlook China International Oils and Oilseeds Conference 2014 Sunaina Dhanuka
Macquarie Capital Securities (Malaysia) Sdn Bhd
+603 20598993
sunaina.dhanuka@macquarie.com
6th November 2014<br>
slide2. Summary of edible oils market last year Each of the Big-4 veg oils added inventory during 2013/14 Change in inventory
mt 6.0
5.0
4.0
3.0
2.0
1.0
-
-1.0
-2.0
-3.0 Source: Macquarie Research, October 2014 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Soy oil Palm oil Rapeseed oil Sunseed oil Page 10<br>
slide3. Summary of edible oils market last year Just to give you an idea of rising palm oil inventories in Indonesia…
YoY increase in inventories of some of the Indonesian CPO producers Source: Company data, Macquarie Research, October 2014 18% -13% -13% -23% -41% 100%
67% 137% 33% -35% -57% -66% 11% 7% -29% -9% -8% -5% 32% -100% -50% 0% 50% 150% 1Q2013 2Q2013
Company A (integrated midstream) 3Q2013 4Q2013
Company B - pure CPO producer 1Q2014 2Q2014
Company C (integrated downstream) Page 10<br>
slide4. Summary of edible oils market last year Not only did the veg oils inventory rise, oilseeds inventory recovered as well, suggesting edible oils crush could stay high in 2014/15
Stock-to-usage ratios Source: USDA, Macquarie Research, October 2014 12.8% 11.0% 9.1% 7.8% 11.3% 25.6% 27.9% 20.8% 21.9% 24.5% 5.0%
0.0% 10.0% 15.0% 20.0% 25.0% 30.0% 09/10 10/11 11/12 12/13 13/14 Rapeseed Soybeans Page 10<br>
slide5. Summary of edible oils market last year Source: Bloomberg, Macquarie Research, October 2014 4-way ‘fight for demand’ narrowed spreads significantly
Veg oil prices (Rotterdam)
US$/t
1,350
1,250
1,150
1,050
950
850
750
650 Jan-13 Feb-13 Mar-13
Apr-13 May-13 Jun-13 Jul-13 Aug-13
Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14
Mar-14
Apr-14 May-14 Jun-14 Jul-14 Aug-14
Sep-14
Oct-14 Sun oil Rape oil Soy oil Palm oil Page 10<br>
slide6. Let’s look at supply for 2014/15… Small increase in rapeseed oil production, stagnation in sun oil production Rapeseed oil production Sunseed oil production Source: Oil World, Macquarie Research, October 2014 Source: Oil World, Macquarie Research, October 2014 19.6 21.4 23.8 23.7 24.4 25.1 26.2 26.8 mt 28.0
27.0
26.0
25.0
24.0
23.0
22.0
21.0
20.0
19.0 10.1 12.9 12.6 12.4 15.3 13.6 16.2 16.0 mt 17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0 Page 10<br>
slide7. Let’s look at supply in 2014/15… Soybeans – we expect South America to plant a big crop again
Question is how yields will perform; we believe they could disappoint Soybean-corn price ratio Source: Bloomberg, Macquarie Research, October 2014 3.90
3.50
3.10
2.70
2.30
1.90
1.50 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Soybean-corn price ratio Avg +1 S.D -1 S.D. Page 10<br>
slide8. Palm oil supply
The seeds for the current bearish palm market were sown during 2005-11 Malaysia - New plantings (ha) Indonesia – New plantings (m ha) 250,000
200,000
150,000
100,000
50,000
0
Source: MPOB, Macquarie Research, November 2014 Source: BPS, Macquarie Research, November 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Page 10 0.10 0.20 0.30 0.40 0.50 0.60 m ha 0.70 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013<br>
slide9. Palm oil supply for 2014/15 However, the biological yield cycle for oil palm is about to turn negative -0.6 Page 10 -0.4 -0.2 0 0.2 0.4 0.6 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 tonnes / ha YoY change in Malaysia's FFB yield<br>
slide10. Now let’s look at demand for 2014/15 All the large consumers also added to their inventories over the past two years
If they were to just use this excess inventory in 2014/15, import requirements are unlikely to be higher despite consumption growth
Import requirements of key consumers Source: Macquarie Research, October 2014 8.3 10.3 11.3 0.6 1.2 0.3 7.5 9.7 11.4 0.0 2.0 6.0
4.0 8.0 10.0 12.0 EU China India FY13/14 net imports Increase in inventory (FY12-14) FY14/15E net Imports Page 10<br>
slide11. Can lower CPO price attract more demand? India hasn’t really benefitted significantly from lower CPO price due to
currency weakness
Olein – soy oil spread in China is very narrow
India CPO landed price Tianjin Olein - Soybean Oil Spread YTD price Source: Bloomberg, Macquarie Research, November 2014 Source: Bloomberg, Macquarie Research, November 2014 Page 11<br>
slide12. Other challenges for CPO next year Falling energy prices have narrowed biodiesel spread
Without a subsidy or strict implementation, Indonesia will find it difficult to reach its target in the short term
Palm Oil -Gas oil spread CPO(-)Gas oil
Source: Bloomberg, Macquarie Research, October 2014 Page 12 -69 600
500
400
300
200
100
-
-100
-200
-300
-400 Jan-08 Apr-08 Jul-08 Oct-08 Jan -09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan -11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan -13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 US$/t<br>
slide13. Other challenges for CPO next year EU will start replacing biofuels quota with GHG reduction quota from 2015
PME could lose demand
Standard GHG emissions for biofuels Source: UFOP, RED 2009/28/EC, November 2014 Page 12<br>
slide14. What does this mean for palm oil exports If spreads stay narrow, no incentive to substitute aggressively into CPO
Palm oil exports by key markets Source: Bloomberg, Macquarie Research, November 2014 6.0 6.9 7.1 6.4 5.8
1.2 6.6
1.4 5.8
1.3 5.2
1.5 7.4 8.2 7.7 7.4 16.0 20.1 20.5 21.6 mt 50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
- 2014/15E Page 12<br>
slide15. Putting everything together… Non-palm oil supply recovery is slowing down the demand for palm oil
Edible oils demand growth vs. supply growth Total edible oils demand growth Non-palm supply growth
Source: MPOB, USDA, Macquarie Research, November 2014 4.1% 4.4% 3.6% 3.0% 3.9% 4.2% 2.9% 3.2% 3.4%3.0% 0.0%
-0.5% 4.9% 2.7%2.7% 8.7% 7.2% 16.8% 2.9% 9.3% 7.0% 6.8% 4.1% 9.6% -1.7%
2013-14 2014-15E -5.0% 5.0% 10.0% 15.0% CAGR
20.0% 2001-05 2005-10 2010-12 2012-13 Palm oil demand growth Palm oil supply growth Page 12<br>
slide16. Putting everything together… Rise in inventories last year will likely prevent prices from rising significantly
Supply growth slowdown should however bring down inventories slightly
Upside for palm oil demand if it starts to discount itself more in the near term
Stock-to-usage ratio Source: MPOB, USDA, Macquarie Research, November 2014 20.0% 17.7% 15.4% 13.7% 14.8% 15.7% 16.4% 15.4% 17.2% 15.1% 16.2% 22.4% 30.8% 23.8% 26.7% 25.2% 12.4% 11.3% 10.1% 10.5% 11.2% 11.9% 11.2% 11.5% 11.6% 11.8% 12.4% 14.4% 14.3% 16.6% 15.8% 5.0%
0.0% 10.0% 15.0% 25.0% 30.0% 35.0% 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15F CPO stock-to-usage Total edible oils stock-to-usage Page 12<br>
slide17. What it means for CPO prices In the near term, CPO price could pull back as recent supply squeeze has been on the soybean/meal side, edible oils still well supplied with rapeseed taking up the slack
Oil palm likely to enter into biological cycle slowdown soon which will limit production
We could also see impact on production next year from droughts earlier this year
Weak El Niño still a possibility
Come summer palm oil inventories could
start to fall and CPO prices rise
Low prices of oilseeds could start to limit supply growth until demand catches up, ultimately supporting prices higher -1.44 Last 3 months exports from key countries
- YoY change
1.68 0.06 -2.00 -1.00 -0.50 - 1.00 1.50 2.00 Soybeans Rapeseed Palm oil mt “You can make a small fortune in farming – provided you start with a large one”<br>
slide18. Our view CPO prices likely to average between
RM2,300 – 2,400 in 2015 1H15 prices likely to average about RM2,200
rising to over RM2,500 in 2H15<br>
slide19. Important disclosures: Recommendation proportions – For quarter ending 30 September 2014 Page 19<br>
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Macquarie salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions which are contrary to the opinions expressed in this research. Macquarie Research produces a variety of research products including, but not limited to, fundamental analysis, macro-economic analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Page 19<br>
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© Macquarie Group Page 19<br>
Macquarie Capital Securities (Malaysia) Sdn Bhd
+603 20598993
sunaina.dhanuka@macquarie.com
6th November 2014<br>
slide2. Summary of edible oils market last year Each of the Big-4 veg oils added inventory during 2013/14 Change in inventory
mt 6.0
5.0
4.0
3.0
2.0
1.0
-
-1.0
-2.0
-3.0 Source: Macquarie Research, October 2014 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Soy oil Palm oil Rapeseed oil Sunseed oil Page 10<br>
slide3. Summary of edible oils market last year Just to give you an idea of rising palm oil inventories in Indonesia…
YoY increase in inventories of some of the Indonesian CPO producers Source: Company data, Macquarie Research, October 2014 18% -13% -13% -23% -41% 100%
67% 137% 33% -35% -57% -66% 11% 7% -29% -9% -8% -5% 32% -100% -50% 0% 50% 150% 1Q2013 2Q2013
Company A (integrated midstream) 3Q2013 4Q2013
Company B - pure CPO producer 1Q2014 2Q2014
Company C (integrated downstream) Page 10<br>
slide4. Summary of edible oils market last year Not only did the veg oils inventory rise, oilseeds inventory recovered as well, suggesting edible oils crush could stay high in 2014/15
Stock-to-usage ratios Source: USDA, Macquarie Research, October 2014 12.8% 11.0% 9.1% 7.8% 11.3% 25.6% 27.9% 20.8% 21.9% 24.5% 5.0%
0.0% 10.0% 15.0% 20.0% 25.0% 30.0% 09/10 10/11 11/12 12/13 13/14 Rapeseed Soybeans Page 10<br>
slide5. Summary of edible oils market last year Source: Bloomberg, Macquarie Research, October 2014 4-way ‘fight for demand’ narrowed spreads significantly
Veg oil prices (Rotterdam)
US$/t
1,350
1,250
1,150
1,050
950
850
750
650 Jan-13 Feb-13 Mar-13
Apr-13 May-13 Jun-13 Jul-13 Aug-13
Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14
Mar-14
Apr-14 May-14 Jun-14 Jul-14 Aug-14
Sep-14
Oct-14 Sun oil Rape oil Soy oil Palm oil Page 10<br>
slide6. Let’s look at supply for 2014/15… Small increase in rapeseed oil production, stagnation in sun oil production Rapeseed oil production Sunseed oil production Source: Oil World, Macquarie Research, October 2014 Source: Oil World, Macquarie Research, October 2014 19.6 21.4 23.8 23.7 24.4 25.1 26.2 26.8 mt 28.0
27.0
26.0
25.0
24.0
23.0
22.0
21.0
20.0
19.0 10.1 12.9 12.6 12.4 15.3 13.6 16.2 16.0 mt 17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0 Page 10<br>
slide7. Let’s look at supply in 2014/15… Soybeans – we expect South America to plant a big crop again
Question is how yields will perform; we believe they could disappoint Soybean-corn price ratio Source: Bloomberg, Macquarie Research, October 2014 3.90
3.50
3.10
2.70
2.30
1.90
1.50 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Soybean-corn price ratio Avg +1 S.D -1 S.D. Page 10<br>
slide8. Palm oil supply
The seeds for the current bearish palm market were sown during 2005-11 Malaysia - New plantings (ha) Indonesia – New plantings (m ha) 250,000
200,000
150,000
100,000
50,000
0
Source: MPOB, Macquarie Research, November 2014 Source: BPS, Macquarie Research, November 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Page 10 0.10 0.20 0.30 0.40 0.50 0.60 m ha 0.70 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013<br>
slide9. Palm oil supply for 2014/15 However, the biological yield cycle for oil palm is about to turn negative -0.6 Page 10 -0.4 -0.2 0 0.2 0.4 0.6 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 tonnes / ha YoY change in Malaysia's FFB yield<br>
slide10. Now let’s look at demand for 2014/15 All the large consumers also added to their inventories over the past two years
If they were to just use this excess inventory in 2014/15, import requirements are unlikely to be higher despite consumption growth
Import requirements of key consumers Source: Macquarie Research, October 2014 8.3 10.3 11.3 0.6 1.2 0.3 7.5 9.7 11.4 0.0 2.0 6.0
4.0 8.0 10.0 12.0 EU China India FY13/14 net imports Increase in inventory (FY12-14) FY14/15E net Imports Page 10<br>
slide11. Can lower CPO price attract more demand? India hasn’t really benefitted significantly from lower CPO price due to
currency weakness
Olein – soy oil spread in China is very narrow
India CPO landed price Tianjin Olein - Soybean Oil Spread YTD price Source: Bloomberg, Macquarie Research, November 2014 Source: Bloomberg, Macquarie Research, November 2014 Page 11<br>
slide12. Other challenges for CPO next year Falling energy prices have narrowed biodiesel spread
Without a subsidy or strict implementation, Indonesia will find it difficult to reach its target in the short term
Palm Oil -Gas oil spread CPO(-)Gas oil
Source: Bloomberg, Macquarie Research, October 2014 Page 12 -69 600
500
400
300
200
100
-
-100
-200
-300
-400 Jan-08 Apr-08 Jul-08 Oct-08 Jan -09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan -11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan -13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 US$/t<br>
slide13. Other challenges for CPO next year EU will start replacing biofuels quota with GHG reduction quota from 2015
PME could lose demand
Standard GHG emissions for biofuels Source: UFOP, RED 2009/28/EC, November 2014 Page 12<br>
slide14. What does this mean for palm oil exports If spreads stay narrow, no incentive to substitute aggressively into CPO
Palm oil exports by key markets Source: Bloomberg, Macquarie Research, November 2014 6.0 6.9 7.1 6.4 5.8
1.2 6.6
1.4 5.8
1.3 5.2
1.5 7.4 8.2 7.7 7.4 16.0 20.1 20.5 21.6 mt 50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
- 2014/15E Page 12<br>
slide15. Putting everything together… Non-palm oil supply recovery is slowing down the demand for palm oil
Edible oils demand growth vs. supply growth Total edible oils demand growth Non-palm supply growth
Source: MPOB, USDA, Macquarie Research, November 2014 4.1% 4.4% 3.6% 3.0% 3.9% 4.2% 2.9% 3.2% 3.4%3.0% 0.0%
-0.5% 4.9% 2.7%2.7% 8.7% 7.2% 16.8% 2.9% 9.3% 7.0% 6.8% 4.1% 9.6% -1.7%
2013-14 2014-15E -5.0% 5.0% 10.0% 15.0% CAGR
20.0% 2001-05 2005-10 2010-12 2012-13 Palm oil demand growth Palm oil supply growth Page 12<br>
slide16. Putting everything together… Rise in inventories last year will likely prevent prices from rising significantly
Supply growth slowdown should however bring down inventories slightly
Upside for palm oil demand if it starts to discount itself more in the near term
Stock-to-usage ratio Source: MPOB, USDA, Macquarie Research, November 2014 20.0% 17.7% 15.4% 13.7% 14.8% 15.7% 16.4% 15.4% 17.2% 15.1% 16.2% 22.4% 30.8% 23.8% 26.7% 25.2% 12.4% 11.3% 10.1% 10.5% 11.2% 11.9% 11.2% 11.5% 11.6% 11.8% 12.4% 14.4% 14.3% 16.6% 15.8% 5.0%
0.0% 10.0% 15.0% 25.0% 30.0% 35.0% 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15F CPO stock-to-usage Total edible oils stock-to-usage Page 12<br>
slide17. What it means for CPO prices In the near term, CPO price could pull back as recent supply squeeze has been on the soybean/meal side, edible oils still well supplied with rapeseed taking up the slack
Oil palm likely to enter into biological cycle slowdown soon which will limit production
We could also see impact on production next year from droughts earlier this year
Weak El Niño still a possibility
Come summer palm oil inventories could
start to fall and CPO prices rise
Low prices of oilseeds could start to limit supply growth until demand catches up, ultimately supporting prices higher -1.44 Last 3 months exports from key countries
- YoY change
1.68 0.06 -2.00 -1.00 -0.50 - 1.00 1.50 2.00 Soybeans Rapeseed Palm oil mt “You can make a small fortune in farming – provided you start with a large one”<br>
slide18. Our view CPO prices likely to average between
RM2,300 – 2,400 in 2015 1H15 prices likely to average about RM2,200
rising to over RM2,500 in 2H15<br>
slide19. Important disclosures: Recommendation proportions – For quarter ending 30 September 2014 Page 19<br>
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