Will India import less veg oil in 2016-17 ? By Dorab E Mistry Godrej International Limited

Congratulations Congratulations to TEFLA’S and SEA on bringing Globoil to New Delhi Congrats to all Organisers National Capital Region is a powerhouse for our industry You all deserve a big pat on the back for making this conference in our Capital as success

What happened to Indian imports In the Oil Year 15-16, India surprised the world by importing only 14.738 mln tonnes as against 15,600 mln Expected and 14,612 mln in 14-15 This was DESPITE a big decline in domestic production due to drought ! What were the reasons for this dramatic fall

Dramatic fall in Imports Stocks were run down Pipelines were thinned Consumption slowed due to high prices and poor water availability The industry has become more efficient Current year 16-17 will confirm this trend of slower growth in consumption

Indian Imports 15/16 Actuals 16/17 Soya 4,200 4,235 3,500 Palm 9,750 8,510 8,650 Sun 1,200 1,516 1,750 Total 15,600 14,738 14,300

Palm Situation In 2016 Indonesian production recovered strongly from September onwards Malaysian production has still not begun to recover. Drought in Q1 of 2016 in Malaysia has hurt the recovery Overall palm supply is still very tight

PALM Production Total palm prod Down 6 million tonnes in 15-16 In Malaysia, December 2016 was the Turning Point – December 2016 production was Higher than December 2015 – After 11 successive months of Y o Y declines We await Malaysian Jan 17 production

Palm Stocks and Prospects Total palm stocks fell 5.5 mln mt 16-17 Prod will RISE 6 mln mt Calendar 2017 – Malaysia 19.5 and Indonesia 33.5 to 34 million tonnes What will be Malaysian stocks as on 31st Jan and on 28 Feb 2017. Have prices done their job ?

Other Oils Sun oil has been the big winner of 2016 and will be the big winner of 2017 Soya oil was too high in price and became uncompetitive. Uncertainty over US bio diesel regime has cast a shadow on soya oil Rape oil is becoming expensive

CHINA Release of old Rape oil from State Reserve in 2016 was a game changer Increased soya crush & import of sun oil Without the cushion of Chinese Reserve stocks, we may see bigger volatility in Rape oil prices Rape crop down from 12 mln to 5 mln ?

Biodiesel - Indonesia Subsidy from the Estates Crop Fund can cover only 200,000 tonnes per month of Palm Biodiesel at current POGO However in SH 2017, their Revenue from the Export Levy will be much higher due to higher exports. If CPO prices are lower, the Subsidy required will be lower. What happens if CPO prices fall by US$ 100 ?

U S Biodiesel Mandate This is the most critical Uncertainty Rural America voted for Trump but his administration has shown utter disdain for their interests Eventually, I believe all bio fuel incentives will be restored and will be safe The current uncertainty led to the recent sell-off. It was not justified

Soya Oil The recent sell off made soya oil competitive once again If Blenders Credit is turned into Producers Credit, it will be very bullish CBOT futures I believe US bio diesel regime will be clear by the end of March. Soya complex will respond to US plantings and weather at an early stage this year

World Energy Demand World Energy demand for veg oils grew in 2015-16 by 2.5 mln tonnes. Led by Indonesia and USA Growth in 16-17 will depend on the USA biodiesel regime and on Indonesia. Could rise by 2 million tonnes.

World Food Demand Food Demand rose at 2.5 mln mt in 15-16 In 16-17 expected to grow by 3 million tonnes

Incremental Supply 000 tonnes 15-16 16-17 Soya oil + 3,000 + 2,500 Rape oil - 1,000 - 1,500 Palm oil - 6,000 + 6,000 Others - 1,400 + 2,000 Total Supply - 5,400 + 9,000 Total Demand + 5,000 + 5,000

Sustainability RSPO has had a good year Indonesian Sustainable Palm Oil has also made progress Premium for MB has soared Let us not make sustainability unaffordable

Short Term Outlook Between now and POC in Kuala Lumpur, prices must remain high to ration demand End Jan Malaysian stocks could go below 1.5 million tonnes Cash CPO price for spot material has already traded well above 3300 Ringgits BMD futures can rise to 3300 Ringgits and CPO Fob should rise to US$ 800

Short term Outlook At some stage – perhaps around POC time, we shall get the signal that CPO production in Malaysia has begun to recover strongly At that stage we must expect a sharp decline in prices. However, I wonder if that decline is to be ignored or bought Stocks will ease only around June India must import more soya oil immediately

Assumptions for Medium Term Price Outlook Brent crude USD 50 to 70 per barrel Two Rate Hikes by FED in 2017 Developing Country Currencies to be stable against USD. Ringgit may improve No major Trade Wars or Disruption President Trump will be different from Candidate Trump

Price Outlook 2017 may be Election Year in Malaysia Market will give a knee jerk reaction at the first signal of rising production – possibly in early or mid March We can see the Inverse of almost USD 40 from Q2 to Q3 disappear quickly By June or July 2017, BMD to 2500, RBD Olein at USD 650 FOB

Price Outlook Soya oil is now well priced and it may not decline from current levels. New crop MJJ is well priced All eyes on US Biodiesel Regime Sun oil will compete with Soya oil Lauric prices must decline from Q3 of 2017 We may see a dramatic collapse in laurics

Some Political Possibilities These mainly relate to President Trump and his policies An Import Tax into USA ? Stronger USD World tensions rise. Scope for a misadventure Brazil descends into chaos ? Malaysia has instability? Hope not

Conclusion I hope and believe President Trump will be different from Candidate Trump India is returning to normal quickly 2017 will be the Year of Emerging Markets and of stronger growth in Asia GOOD LUCK & GOD BLESS