where are palm oil prices heading?

© 2016 LMC International. All rights reserved. www.lmc.co.uk

Where are palm oil prices heading? Grepalma Congress

August 2016

Palm oil is still tied to

petroleum today.

El Niño and the Chinese

Strategic Reserve have

been major influences on

oils prices this year.

What happens next?

The impact of biodiesel on palm prices

© 2016 LMC International. All rights reserved. POTS Tianjin, August 2016

In 2000, biofuels took less than 1% of all oils. By 2015, the share was 17% (27%

for rapeseed;17% for soy and palm), and 15% of maize supply went to biofuels.

% of output used for biofuels for major crops

5

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 i

n b

iofu

els

Cane Maize Total oils Rapeseed oil Soy oil Palm oil


In 2000, biofuels took less than 1% of all oils. By 2015, the share was 17% (27%

for rapeseed;17% for soy and palm), and 15% of maize supply went to biofuels.

% of output used for biofuels for major crops

6

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 i

n b

iofu

els

Cane Maize Total oils Rapeseed oil Soy oil Palm oil


There is a price band for oils. The floor to the band is where EU CPO equals

Brent crude prices, and thus CPO is cheaper than crude oil in S.E. Asia..

EU prices for Brent crude oil and crude palm oil

7

0

200

400

600

800

1,000

1,200

1,400

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

EU

prt

ice

s (U

S$ p

er

ton

ne

)

CPO Brent


There is a price band for oils. The floor to the band is where EU CPO equals

Brent crude prices, and thus CPO is cheaper than crude oil in S.E. Asia..

EU prices for Brent crude oil and crude palm oil

8

0

200

400

600

800

1,000

1,200

1,400

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

EU

prt

ice

s (U

S$ p

er

ton

ne

)

CPO Brent


The floor exists because discretionary biodiesel use emerges when CPO

competes as a fuel. Indonesian PME exports to price-sensitive markets prove this.

Indonesian PME exports and the CPO-Brent differential

9

-200

-100

0

100

200

300

400

-80

-40

0

40

80

120

160

Jan-09 Dec-09 Nov-10 Oct-11 Sep-12 Aug-13 Jul-14 Jun-15 May-16

Ind

on

esia

n C

PO

pre

miu

m v

s B

ren

t, $/to

nn

ePM

E e

xp

ort

s f

rom

In

do

nesia

('0

00 t

on

nes)

Local CPO premium vs Brent, $/tonne PME exports not to US or EU


The floor exists because discretionary biodiesel use emerges when CPO

competes as a fuel. Indonesian PME exports to price-sensitive markets prove this.

Indonesian PME exports and the CPO-Brent differential

10

-200

-100

0

100

200

300

400

-80

-40

0

40

80

120

160

Jan-09 Dec-09 Nov-10 Oct-11 Sep-12 Aug-13 Jul-14 Jun-15 May-16

Ind

on

esia

n C

PO

pre

miu

m v

s B

ren

t, $/to

nn

ePM

E e

xp

ort

s f

rom

In

do

nesia

('0

00

to

nn

es)

Local CPO premium vs Brent, $/tonne PME exports not to US or EU

The impact of the 2015-16 El Niño


The ONI tracks ocean warming. The 2015-16 El Niño is as strong as in 1997-98,

the last major one, but the ONI is now falling back, following the path of 1997-98.

The Oceanic Niño Index (ONI) in various years

12

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov

ON

I

1997-98 2009-10 2015-16


The ONI tracks ocean warming. The 2015-16 El Niño is as strong as in 1997-98,

the last major one, but the ONI is now falling back, following the path of 1997-98.

The Oceanic Niño Index (ONI) in various years

13

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5


ON

I

1997-98 2009-10 2015-16


The CPO price broadly followed the ONI in 1997-98. As the El Niño ended, CPO

prices returned to normal.

CPO prices vs. the ONI in 1997/98 El Niño

14

0

100

200

300

400

500

600

700

800

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5


EU

CP

O p

rice

, US

$ p

er to

nn

e

ON

I

ONI 1997-98 CPO 1997-98


However, it is evident that CPO prices did not follow the ONI in 2015-16. If

anything, it was the opposite.

CPO prices vs. the ONI in 2015/16 El Niño

15

0

100

200

300

400

500

600

700

800

0.0

0.5

1.0

1.5

2.0

2.5

Jan Mar May Jul Sep Nov Jan Mar May

EU

CP

O p

rice

, US

$ p

er to

nn

eO

NI

ONI 20015-16 CPO 2015-16


However, today’s price band means that we should focus on CPO’s premium

over Brent, not the flat CPO price. The El Niño’s impact becomes very clear.

CPO premium over Brent vs. the ONI in 2015/16

16

0

50

100

150

200

250

300

350

400

0.0

0.5

1.0

1.5

2.0

2.5


CP

O p

rem

ium

ove

r Bre

nt, U

S$ p

er to

nn

e

ON

I

ONI 20015-16 Premium over Brent 3 months later


However, today’s price band means that we should focus on CPO’s premium

over Brent, not the flat CPO price. The El Niño’s impact becomes very clear.

CPO premium over Brent vs. the ONI in 2015/16

17

0

50

100

150

200

250

300

350

400

0.0

0.5

1.0

1.5

2.0

2.5


CP

O p

rem

ium

ov

er B

ren

t, US

$ p

er to

nn

e

ON

I

ONI 20015-16 Premium over Brent 3 months later

Palm oil prices in 2015/16


In view of the big loss of CPO output, the key question is: why didn’t CPO prices

rise more? The main answer: steady rapeseed oil sales from China’s State Reserve.

Rapeseed oil sales from Chinese State Reserve

19

4.0

4.5

5.0

5.5

6.0

6.5

0.0

0.5

1.0

1.5

2.0

2.5

Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

Ra

pe

see

d o

il Sta

te R

ese

rve

, millio

n to

nn

es

Cu

mu

lati

ve

au

cti

on

to

nn

ag

e, m

illi

on

to

nn

es

Cumulative auctions since Dec. 2015 Remaining State Reserve


The auctions, with a 5,300 RMB floor price, acted as a cap to other oils prices,

locally and globally.

Chinese vegetable oil prices

20

4,000

4,500

5,000

5,500

6,000

6,500

Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16

Ch

ine

se O

il P

rice

s (R

MB

pe

r to

nn

e)

Palm olein Jiangsu Average rapeseed oil auction

Rapeseed oil market Jiangsu Grade 4 soy oil, Shandong


The auctions, with a 5,300 RMB floor price, acted as a cap to other oils prices,

locally and globally.

Chinese vegetable oil prices

21

4,000

4,500

5,000

5,500

6,000

6,500

Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16

Ch

ine

se O

il P

rice

s (R

MB

pe

r to

nn

e)

Palm olein Jiangsu Average rapeseed oil auction

Rapeseed oil market Jiangsu Grade 4 soy oil, Shandong

The road ahead for CPO prices


By Q4 this year, combined Malaysian and Indonesian CPO output will again

record positive quarterly year-on-year growth, which will lift palm oil stocks.

Year-on-year growth in SE Asian CPO output

23

-20%

-10%

0%

10%

20%

30%

40%

Q1.08 Q1.09 Q1.10 Q1.11 Q1.12 Q1.13 Q1.14 Q1.15 Q1.16 Q1.17

Ye

ar-

on

-ye

ar

gro

wth

in

CP

O o

utp

utt


Looking ahead, maturing oil palm areas and normal yields would lift CPO output

by 6 million tonnes in 2017 and by a further 3.5-4 million tonnes in 2018.

SE Asian CPO output

24

45

48

51

54

57

60

2012 2013 2014 2015 2016 2017 2018

S.E

. A

sia

n C

PO

ou

tpu

t, m

illi

on

to

nn

es


Looking ahead, maturing oil palm areas and normal yields would lift CPO output

by 6 million tonnes in 2017 and by a further 3.5-4 million tonnes in 2018.

SE Asian CPO output

25

45

48

51

54

57

60

2012 2013 2014 2015 2016 2017 2018

S.E

. A

sia

n C

PO

ou

tpu

t, m

illi

on

to

nn

es


Important factors in price formation today

Rapeseed oil from the Chinese State Reserves.

26




Surprisingly strong Chinese demand for soybeans for crushing,

adding to oil supplies.

27






Limit on subsidised Indonesian sales of biodiesel because of the

wide CPO-gasoil spread.

28








Palm oil production recovery arriving in the second half of 2016 in

the face of a gloomier macro-economic outlook.

29










Spot CPO in the EU is currently $340 over Brent with OND prices

$280 above. The average level of the spread is $225.

30










Spot CPO in the EU is currently $340 over Brent with OND prices

$280 above. The average level of the spread is $225.

With Brent crude price at $45/barrel ($330/tonne), the average

premium points to CPO falling to $550, then falling below $500 FOB

as MPOB stocks move above 2 million tonnes..

31

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While LMC has endeavoured to ensure the accuracy of the data, estimates and forecasts contained in this presentation,

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LMC International can accept no liability regarding information analysis and forecasts contained in this presentation.

© LMC International, 2016

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