Palm Oil Market Outlook GLOBOIL 2019 Dubai, 28th – 30th April 2019 Dr. Sathia Varqa Palm Oil Analytics, Singapore sathia.varqa@palmoilanalytics.com

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Outline Main problem Key factors impacting palm market Jan to Apr 2019 Production outlook Demand Indonesia and Malaysia Reference to India & biodiesel Stocks Consumption outlook Laurics oil Conclusion & price outlook

Main problems Slow export growth Soaring stocks, particularly in Malaysia Bad trade policies around the world Weighing down on global CPO prices

Main factors impacting palm in 2019 MACRO SECTOR TRADE POLICY HIGH STOCKS CURRENCY DEMAND

Problem : CPO prices down

Lower prices & narrower difference In a low price scenario, Malaysian and Indonesia government frequently tweak their taxes to influence prices in order to win market share

YoY Price change on major exchanges

Q1 2019 Production up 15% from Q1 2018 Exports are up by 12% during the same time. Lag of 1.480 million tons

Palm Oil Production

Export growth slowed down

2019 production estimate & 2020 projection Indonesia to make significant contribution to global CPO output in 2019 by 3 million tons to 44 million tons, but at a slower pace of growth of 7% versus 14% in 2018 Malaysia output seen rising 780,000 tons or 4% in 2019 from the previous year

Demand - Indonesia Robust domestic demand from biodiesel segment helped to lower Indonesian stocks to 20 months low in February Domestic consumption could overtake exports in about 5 years if biodiesel mandates are maintained

Demand – biodiesel outlook Indonesia biodiesel segment to absorb 8-9 million tons of CPO in 2019

Demand – Indonesia biodiesel outlook Indonesia biodiesel to see another year of increase in production (30%) and consumption (60%) in 2019 from the year before.

Demand - Malaysia Exports rose mainly on support from zero export taxes and lower import tariffs from India. Malaysia export up 8% in Q1 2018 Though domestic biodiesel did not see a rise, Malaysia biodiesel export saw more than twofold rise in 2018 and in Q1 2019

Exception - Malaysia export to India Malaysia RBD palm olein export to India been strong in Jan-Apr 2019 and is likely to continue into the rest of the year Malaysia export to India make up 24% of the total exports in Q1 2019 vs. Q1 2018.

Malaysia export to India bonanza Malaysia exports demand been particularly favourable to India due to: Lower tariffs Cheaper prices Higher palm discount to SBO Stronger Rupee Declining edible oil stocks

Demand – higher palm discount

Demand – Indian Rupee rises Rupee from worst to best performer making imports competitive

Demand - India edible oil stock Stocks are just climbing up after staying in deficit in the last 5 months

Malaysia displaces Indonesia

Demand – biodiesel outlook Malaysia biodiesel segment to absorb 1.50 million tons of CPO in 2019 versus 600K tons in 2018 Malaysia biodiesel exports could reach a record 700,000 tons in 2019 or 37% increase from 2018. Q1 2019 exports are up 79% from Q1 2018

Demand – stock levels YoY change Indonesia - declining Malaysia - surplus China - rising

Consumption outlook

Laurics - cpko Ample supply at origin market is likely to keep prices lower in 2019

Laurics – Ccno-cpko spread CPKO Rotterdam traded at 10 year low of US$ 595 on spot delivery CCNO-CPKO will widen to US$ 100 from current US$ 55

Conclusion & price outlook Prices will stay under pressure RM 1990 (U$ 482) and upside of RM 2200 (US$ 533) in Q2 and Q3 Stocks must fall by 500K tons in Malaysia for prices to rise above RM 2300 (US$ 560) Biodiesel will be the main price support this year. Indonesia B30 will be keenly watched. Malaysia biodiesel export looks strong again in 2019 CPO price difference - Indonesian & Malaysian price difference will stay narrow US$ 5-20 CPKO prices will be under pressure from high stocks & lower CCNO prices

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