lmc oils price view - mpoc · market to canadian seed imports and rape/canola oil’s price...

©LMC International, 2014 1 9/15/14

LMC Oils Price View

David Jackson POTS Shanghai, September 2014


Key developments oils prices


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Vege

tabl

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ude

Oils

(US$

tonn

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Soybean Oil Crude Palm OilRapeseed Oil Sunflower OilBrent Crude Oil

Vegetable oil prices have been falling due to 1). large seed oils crops 2). increasing palm oil output 3). declining petroleum prices

Vegetable and mineral oil prices, NW EU ports


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EU Palm Oil Premium Palm Oil AverageEU Soy Oil Premium Soy Oil AverageEU Rapeseed Oil Premium Rapeseed Oil Average

The premium over crude mineral oil is now the most important indicator for vegetable oil prices. On average, these have widened in the past month, but…. EU premium for major oils over Brent crude prices


….on a daily basis, premia declined below crude at the end of August. This creates the price band, which links vegetable oil and petroleum prices.

Daily premia of CPO prices vs. Brent crude

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03-Sep-12 03-Jan-13 03-May-13 03-Sep-13 03-Jan-14 03-May-14

CPO

Pre

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rent

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r ton

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Cif Rott FOB Belawan FOB Belawan-Export Tax


How does the price band work?


The price floor occurs when CPO and Brent crude in the EU are almost the same (i.e., and zero premium). This is a coincidence! The reason lies elsewhere…

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Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14

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Cif Rott


…in South East Asia, where FOB prices are lower because of the freight to the EU.

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Cif Rott FOB Belawan


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EU p

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Cif Rott FOB Belawan FOB Belawan - export tax

In particular in Indonesia, because of the export tax system, CPO has been cheap as a fuel source – outside of any government incentives – for long periods.


In addition to CPO, Decatur soy oil is also near parity with Brent, which is emerging as its price floor.

Daily premia of FOB Indonesian and Decatur soy oil vs. Brent crude

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03-Sep-12 03-Jan-13 03-May-13 03-Sep-13 03-Jan-14 03-May-14

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FOB SE Asia Decatur Soybean oil


Fundamentals determine the size of the price premium vs. Brent crude


Total palm oil output expanded 16% this month when compared with a year ago. Indonesian output expanded by over 20% compared with a year earlier.

Year-on-year growth in CPO production

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Q1.2009 Q1.2010 Q1.2011 Q1.2012 Q1.2013 Q1.2014

Year

-on-

year

gro

wth

in C

PO o

utpu

t,%

Malaysia Indonesia Total, including Thailand and Colombia

Indonesian production takes longer to affect stocks, which are recorded in Malaysia.


CPO stocks have been insufficient to explain recent price weakness. Seed oils pushed palm down. But increasing production will now raise stocks.

Malaysian palm oil stocks vs. the EU premium for CPO over Brent crude

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MPO

B Palm O

il Stocks, '000 tonnesEU p

rem

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nt ,

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onne

CPO Premium over Brent Crude Average CPO PremiumMPOB Stock Total


A price band exists in PKO too! Rising PKO stocks have brought down the PKO premium over Brent crude. CNO’s high premium persists.

PKO stocks vs. premium for PKO over Brent crude

EU vegetable and crude oil prices, including lauric oils

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PK

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Stocks EU PKO premium over Brent

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Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Ve

ge

tab

le a

nd

Cru

de

Oil

s (U

S$

pe

r to

nn

e)

Brent Crude Oil Palm Oil Soybean Oil Coconut oil PKO


The Chinese oils market


China Rapeseed oil is looking much more competitive within China than a year ago. Canadian imports to China were restricted, but with the ban now largely removed, Chinese rapeseed prices are converging with Canada.

Rapeseed oil price comparison Chinese oil price comparison

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$ p

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Canada EU China

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Sunflower oil Soybean oil Rapeseed oil Palm Oil


China Canola imports to China have benefitted from the re-opening of the market to Canadian seed imports and rape/canola oil’s price competitiveness. Palm oil’s share of Chinese imported oil (including oil-in-seed) averages 29% this year.

Chinese rapeseed oil imports

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Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13

'000

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es

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oil

imp

ort

s

Direct rapeseed oil imports Oil-in-seed imports

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Dec-05 Aug-07 Apr-09 Dec-10 Aug-12 Apr-14

Palm

Oil S

hare of Total (%)

Oil

impo

rts

(% o

f tot

al)

Palm Oil Rapseseed Oil Soybean Oil Palm Oil Share (3 month moving average)

Shares of Chinese oil and oil-in-seed imports


Refining margins


After two years, the initial benefits of the Indonesian export taxes (DETs) have been competed away. Indonesian CPO has become more expensive than palm olein to buyers outside Indonesia

Indonesia daily FOB prices Effect on margins of introduction of Indonesian DETs, September 2011

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Indonesia internal margin Indonesia FOB marginMalaysia internal margin

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03-Sep-12 03-Feb-13 03-Jul-13 03-Dec-13 03-May-14

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$ p

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Indonesia CPO Indonesia Stearin Indonesia Olein


The different perspectives of a refiner within Indonesia and one purchasing CPO on an FOB basis are shown. For the domestic refiner, export taxes keep CPO below product prices. For the FOB buyer, CPO is now more costly than product values, turning margins negative.

Premium over Brent crude for daily prices within Indonesia

Premium over Brent crude for Indonesia daily FOB prices

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LMC Oils Price Forecast


Forecasting vegetable oil prices

Step 1). With the price band still intact, the first part to understanding the price of vegetable oils today is the petroleum (crude oil) price.

Step 2). The second part is to understand the premium for individual vegetable oils over petroleum inside the price band.


Key factors for prices in the rest of 2014

CPO prices today are at parity with Brent crude in the EU – the price floor.

Huge seed oil crops pushed all oils down. Now, CPO output is expanding fast as well and SE Asia biodiesel mandates (and El Nino!) are weaker than expected.

In Indonesia, CPO prices are cheaper than petroleum. This stimulates discretionary biodiesel blending without the need for subsidies.

A new price floor may be emerging in soy oil, which is also encouraging discretionary blending today.


UPDATE Looking ahead, palm oil should strengthen as discretionary blending tightens stocks. This will support seed oils, but at lower premiums.

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EU Palm Oil Premium EU Soy Oil Premium

Palm Oil Average Soy Oil Average


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, 2014 All rights reserved

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lmc oils price view - mpoc · market to canadian seed imports and rape/canola oil’s price...

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