GLOBAL PALM OIL SUPPLY AND DEMAND DYNAMICS AND PRICE OUTLOOK 2012 BY A. H. LING GANLING SDN BHD Ganling 6th CIOC, GUANGZHOU, 12-13 NOV 2011

TODAY’S PRESENTATION FOCUS ON KEY PALM OIL SUPPLY AND DEMAND DYNAMICS AND ITS LIKELY IMPACT ON PRICE TRENDS 1. GLOBAL PALM OIL PRODUCTION AND SUPPLY SCENARIO 2. WEATHER CHANGES AND PALM OIL SUPPLY 3. BIODIESEL - EMERGING DRIVER IN THE DEMAND EQUATION OF EDIBLE OILS 4. PRICE OUTLOOK 2012 Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

GLOBAL PALM OIL PRODUCTION – DYNAMIC SUPPLY GROWTH FASTEST GROWING EDIBLE OIL IN THE WORLD AVG GROWTH OF 7.8% PER ANN (SOYBEAN OIL: 4.8%) LOWER GROWTH IN 2009-10, DUE MAINLY TO ADVERSE WEATHER CONDITIONS Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

GLOBAL PALM OIL PRODUCTION – KEY PRODUCING COUNTRIES GROWTH IS CONCENTRATED MAINLY IN SOUTH-EAST ASIA (89%) INDONESIA + MALAYSIA = 85% OF WORLD’S PRODUCTION INDONESIA IS THE LARGEST PRODUCER WITH 48% AND FOLLOWED BY MALAYSIA (37%) INDONESIA OVERTOOK MALAYSIA AS THE LARGEST PRODUCER IN 2007 AND LARGEST EXPORTER IN 2009 THAILAND IS THE 3RD LARGEST PRODUCER (3%) Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

RAPID AREA EXPANSION BOOSTS GLOBAL PALM OIL PRODUCTION AND SUPPLY Malaysia : 3.4-4.8 mn ha Indonesia : 4.1-7.6 mn ha Production Growth Malaysia : 5% pa Indonesia: 11% pa Malaysia: negative growth for two consecutive years, 2009 (-1%) and 2010 (-3%) Indonesia: still positive growth in 2010 (+4.8%) Sig. shift in the supply epicentre to Indonesia Sig. impact on the supply and trade of palm oil in the world Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

PALM OIL SUPPLY DYNAMICS TO CHANGE STRUCTURALLY MOVING FORWARD? ERA OF RAPID AREA EXPANSION MAY BE ENDING Malaysia new planting : 2-4% (y-o-y ) since 2000 Indonesia new planting : 3-4% (y-o-y) since 2009 Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

SLOWER AREA EXPANSION TO IMPACT GLOBAL PALM OIL SUPPLY GROWTH TABLE 1: NEW PLANTING OF 9 MAJOR PLANTATION COMPANIES FROM INDONESIA   2006 2007 2008 2009 2010 PLANTED HA 73,650 129,536 206,464 162,834 117,964 % Y-O-Y 75.9 59.4 (21.1) (27.6) SOURCE: COMPANY DATA COMPANIES STUDIED: FIRST RESOURCES, BW PLANTATIONS, AALI, WILMAR, SAMPOERNA AGRO, LONSUM, KAGRI, IFAR,GAR NEW PLANTINGS IN INDONESIA HAVE SLOWED DOWN CONSIDERABLY SINCE 2009 SLOW-DOWN DUE TO: STRINGENT STATUTORY AND SUSTAINABILITY REQUIREMENTS AND A TWO -YEARS GOVERNMENT MORATORIUM ON FOREST AND PEATLAND CONVERSION- starting from 2011 SLOWER AREA EXPANSION IN INDONESIA FROM 2009 ONWARD WILL STRUCTURALLY CAP THE SUPPLY GROWTH OF PALM OIL FROM 2015 Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

WEATHER CHANGES AND ITS EFFECTS ON PALM OIL SUPPLY WEATHER IS ONE OF KEY DRIVERS IN THE SUPPLY EQUATION OF VEGETABLE OILS INCLUDING PALM OILS AND AN IMPORTANT CATALYST TO PRICE MOVEMENT PAST, CURRENT AND EMERGING WEATHER PHENOMENA LIKE EL NINO AND LA NINA HAVE BEEN KNOWN TO HAVE SIGNIFICANT IMPACT ON GLOBAL PRODUCTION AND SUPPLY OF OILSEEDS AND PALM OIL USE OF WEATHER-BASED YIELD FORECASTING AND PALM OIL SUPPLY FORECAST Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

HOW ADVERSE WEATHER CONDITIONS AFFECT PALM OIL PRODUCTION? PROLONGED DRY CONDITIONS 8 T0 20 WEEKS DRY: FREQUENTLY REFER TO AS EL NINO INDUCED DROUGHT – caused moisture stress in palms CAN AFFECT PRODUCTION: SOME 4-6 MTHS (bunch failure), 10-12 MTHS (floral abortion) AND 22-24 MTHS (sex differentiation) AFTER ITS OCCURRENCE - lagged effect on production CAN REDUCE PRODUCTION UP TO 30% OF NORMAL - DEPENDING ON SEVERITY EFFECT OF LOW OR DELAYED RAINFALL ON OILSEEDS IS MORE IMMEDIATE AND SEVERE Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

IMPACT OF WET WEATHER ON PALM OIL PRODUCTION PROLONGED WET CONDITIONS 8 TO 16 WEEKS OF HEAVY RAINFALL: SOMETIME REFER TO AS LA NINA INDUCED RAINS CAN AFFECT PRODUCTION: IMMEDIATELY – disruption of harvesting and logistics, SOME 5-6 MTHS AFTER ITS OCCURRENCE – poor pollination and fruit-sets - lagged effect on production CAN REDUCE PRODUCTION: UP TO 15% OF NORMAL IN SEVERE LA NINA EVENT MILD TO MODERATE LA NINA EVENTS ARE BENEFICIAL TO PALMS AND ARE USUALLY ASSOCIATED WITH HIGH PALM OIL PRODUCTION CYCLE Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

LAGGED EFFECT OF RAINFALL ON FFB PRODUCTION 3M -DRY 4M -WET 3M -WET WEATHER-BASED FFB YIELD FORECASTING Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

EFFECTS OF EL NINO AND LA NINA ON CPO PRODUCTION IN MALAYSIA CPO YIELD CAN DECLINE UP TO 17% IN THE YEAR IMMEDIATELY FOLLOWING THE START OF AN EL NINO EVENT LA NINA IS USUALLY ASSOCIATED WITH A SHARP INCREASE OF CPO PRODUCTION (V-SHAPED RECOVERY) A SHARP RECOVERY IN PALM OIL YIELD IN 2011 IS FORECASTED Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

Re-emerging La Nina in 1st Q 2012 PAST, CURRENT AND EMERGING WEATHER - POSITIVE FOR PALM OIL SUPPLY IN 2012? EL NINO Re-emerging La Nina in 1st Q 2012 LA NINA Wet to neutral weather conditions in the previous 16 months unlikely to have any significant adverse effect on palm oil production in 2012 BOM, Australia and NOAA, USA predicted the re-emergence of La Nina from now till 1st Q 2012 in the equatorial pacific basin - unlikely to pose a weather risk to palm oil production in 2012 Concerns that the emerging La Nina may lead to excessive dryness in South America and rains in North America – weather risk to soyabean Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

PALM OIL SUPPLY FORECASTS FOR 2011-12 KEY PRODUCER YEAR CPO (Potential) Mn tonnes (Forecast) CHANGES (Y-O-Y) MALAYSIA 2010 17.9 16.9 (A) -0.5 (-3.2%) 2011(f) 18.4 18.0 1.1 (+6.5%) 2012(f) 18.8 0.4 (+2.2%) INDONESIA 23.3 21.9 (A) 1.0 (+4.8%) 24.9 23.7 1.8 (+8.2%) 26.7 26.0 2.3 (+9.7%) TOTAL 43.3 45.5 41.7 44.4 2.9 (+7.5%) 2.7 (+6.5%) according to weather-based yield forecasting model Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

SUPPLY OUTLOOK FOR 2011/12 Ganling Palm oil production in 2011 are expected to recover fairly strongly aided by the La Nina. A sharp recovery of production was observed in the 2nd Q and 3rd Q 2011 The 22-24 months lagged effect of the last El Nino will again be felt in the last Q 2011 or early 2012 and will result in a short term decline in palm production in both Malaysia and Indonesia Forecast 2011 - Malaysia : 18.0 Mn T (up 6.5% y-o-y) and Indonesia : 23.7 Mn T (up 8.2% y-o-y). Total supply growth for both countries in 2011: 2.9 Mn T (7.5%) Forecast 2012 - With good rainfall from mid-2010 to mid-2011 and the last residual El Nino effect ending in last Q 2011, the palm oil production and supply is expected to resume its normal growth in 2012 – an increase of 2.7 Mn T (6.5% y-o-y) is forecasted and with growth coming mainly from Indonesia Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

PALM OIL PRICE OUTLOOK IMPACT OF SUPPLY RECOVERY ON PALM OIL ON PRICES BIODIESEL DEMAND GROWTH TO DRIVE VEGETABLE OIL PRICES Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

EL NINO AND PALM OIL PRICES 2009-10 1997-98 2002-03 2006-07 EL NINO EVENT IS USUALLY FOLLOWED BY A SPIKE IN PALM OIL PRICES (UP 15% -125% ) RECENT 2009-10 EL NINO: PRICE UP BY 70% TO PEAK AT RM 3962 PMT IN FEBRUARY 2011 Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

MALAYSIAN PALM OIL STOCKS AND CPO PRICES – INVERSE RELATIONSHIP STOCK INCREASE TO ABOVE 2.0 MN TONNES IN SEP 2011 DUE TO STRONG SUPPLY RECOVERY - PRESSURING ON CPO PRICES PRICES DID NOT COLLAPSE DUE TO LINKAGE TO ENERGY SECTOR AND NEW DEMAND DRIVER- BIODIESEL Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

BIODIESEL–EMERGING DRIVER FOR VEGETABLE OILS DEMAND BIOFUEL FOR ENERGY SECURITY BESIDES ENVIRONMENTAL NEEDS BIODIESEL DEMAND INCREASING STEADILY SINCE 2008 INCREASINGLY USE IN MANDATORY BLENDS – EU, BRAZIL (6%) , ARGENTINA (7%) , USA (RFS2) Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

CPO PRICES LINKED TO CRUDE OIL PRICES SINCE 2007 Based on LMC study, price linkage within a band CPO usually premium to world’s crude oil prices Price differential: - USD 22/barrel to +USD 93 per barrel Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

PRICE OUTLOOK CONFERENCE, KL in March 2011 – we forecasted: FCPO PRICES MAY HAVE PEAKED AT 3967 PMT IN FEB 2011 FCPO PRICES UNDERGOING CORRECTIONS, RETRACING TO RM 3400 AND MAY TRADE BETWEEN RM 3200-3800 PMT UNTIL MAY/JUNE 2011 PRICES MAY THEN RETRACE FURTHER TO RM 2700 PMT LEVEL TOWARDS 2ND HALF 2011 2011(F): AVG CPO PRICE OF RM 3100 PMT (2010: RM 2748 PMT) Above forecasts have been partially fulfilled and will still hold true in the last Q 2011 with minor adjustments – average for 2011: RM 3200 PMT Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

RECENT FCPO PRICE TREND AND PRICE OUTLOOK - 2012 PRICE SPIKE FOLLOWING EL NINO INDUCED SUPPLY TIGHTNESS-PEAK IN FEB 2011 @RM3962 PMT (USD 1020) PRICES FELL BY 30% TO RM 2762 PMT(USD 920) FOLLOWING STRONG SUPPLY RECOVERY AND CONCERNS ON EU AND US ECONOMIC WOES PRICE OUTLOOK 2012: MAY BE VOLATILE AND TRADE BTW RM 2500 -3400 PMT (USD 800-1100) Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

CONCLUDING REMARKS Ganling THE RESIDUAL EFFECT OF THE LAST EL NINO (22-24 MTHS AGO) WILL BE FELT AGAIN IN THE LAST Q 2011 AND EARLY 2012 - SHORT TERM DECLINE IN PRODUCTION AND MAY PROVIDE SOME SUPPORT TO PRICES IN THE NEAR TERM MINIMAL WEATHER RISK TO PALM OIL PRODUCTION IN 2012 - PAST AND EMERGING WEATHER ARE FAVORABLE AND POSITIVE FOR PALM OIL SUPPLY INCREASING DEMAND FROM BIODIESEL MANDATES - EMERGING DRIVER FOR DEMAND GROWTH CPO PRICES IN 2012 MAY BE VOLATILE AND TRADE BETWEEN RM 2500-3400 (USD 800–1100) PMT WITH AN AVERAGE SIG. LOWER THAN 2011(E) OF RM 3200 OR USD 1030 PMT PRICES MAY BE CAPPED BY ADEQUATE SUPPLY OF CPO IN 2012 AND WEAKER ECONOMIC GROWTH WORLDWIDE PRICE UPSIDE WILL DEPEND ON WEATHER RISK ON SOYBEAN PRODUCTION IN NORTH AND SOUTH AMERICA IN THE COMING SEASON Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011

Thank you By: A.H.LING , Director, Ganling Sdn Bhd, Sandakan, Malaysia Email: lahong1@gmail.com Acknowledgements: MPOB, Bursa Malaysia, IPOB, Oil World, OSK Research Sdn Bhd, Plantation Companies (for rainfall data), Bureau of Meteorology Australia and NOAA, USA Disclaimer: The author has endeavored to ensure the accuracy of the data, estimates and forecasts contained in this presentation. The views expressed in no way shall be construed as guidance to trade. The author accepts no liability regarding information and forecast contained in this presentation. Ganling 6TH CIOC, GUANGZHOU, 12-13 NOV 2011