1. Trade tension and impact on palm and soybean market
GLOBOIL INDIA 2018
Mumbai, 27-28th September 2018
Dr. Sathia Varqa
Palm Oil Analytics, Singapore

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4. Outline Key factors impacting palm market in 2018 Production
Background to protectionist policies
Type of trade barriers
Impact on edible oils
CPO, RBD palm olein
Soybeans
Conclusion & Year ahead 2019

5. DEPRECIATING CURRENCY
Key factors impacting Palm market
PRODUCTION
Soybean – Brazil/US
Palm oil - Indonesia
TRADE TENSION
Tariff barriers
DEMAND
High stocks
Depreciating currency
LOGISTICS
Truck drivers strike in Brazil/fuel cost
ENVIRONMENT
Ban on veg oil based biofuels
PRICE SUPPORT
Minimum Support Price - India
DEPRECIATING CURRENCY
Emerging markets

6. Main problem
Demand side to supply side problem
Rising production
Sluggish demand
Soaring stocks
Made worse by trade tension

7. Palm Oil Production

8. Global Production

9. Change in G4 Production

10. planted area exceed 5 year average

11. U.S still the largest producer

12. USDA Global Ending Stock Outlook

13. Palm Oil Exports

14. Change in production, export & stocks

15. 2018 production estimate & 2019 projection
Malaysia year-end stocks to reach 2.60 million tons
Indonesia year-end stocks to surpass 5.50 million ton
Collectively we could see stocks of over 8.0 million tons in Malaysia + Indonesia

16. CPO prices trended lower in 2018

17. Soybean oil prices fell the most from combination of bearish factors

18. Prices – Meal fell the least on lower Argentina Export in 2017-18

19. exports been dismal… 1. India imposed steep import tariffs on palm oil
Soft oil import tariff difference to crude & refined palm is now 9% from previously 14% and 19% respectively

20. Why exports been dismal But…
2. High inventories – origin

21. Why exports been dismal
2. High inventories – destination

22. Why exports been dismal
3. Palm olein prices adjusted to lower soybean oil prices

23. Why exports been dismal
4. No significant increase in biodiesel despite CPO being cheaper than gasoil

24. Background to protectionist policies
Welfare spending
Redistribution of income
Win elections
Increasing income
Fixation over economic growth
Population growth
Distributional conflicts
Defense
Jobs
Poverty
Education
Infrastructure spending
Investment
Housing

25. Economic growth been the over-riding rationale for where we are today
Background to protectionist policies
Economic growth been the over-riding rationale for where we are today
But growth can only happen on a steady path if there is a continued flow of capital, labour, technology and credit flow
However if capital is low, then need to supplant it.

26. Protectionist policies
Background to protectionist policies
Growth
Borrow
Raise taxes
Reduce spending
Raise interest rate
Issue government bonds
Depreciate currency
Reduce import dependency
Raise import tariffs
Debt
Protectionist policies

27. Gross Debt position

28. General government debt as percentage of gdp

29. Countervailing duties
Main Protectionist policies implemented – tariffs & taxes
Import
tariffs
Anti-Dumping duties
Export taxes
Countervailing duties
Import tariffs – a fixed fee or a percentage imposed on an imported product
Anti-dumping duties –duties imposed on goods believed to be priced below fair market value
Export taxes –duty levied on product leaving the country. Could be levy, tax on profit, etc.
Countervailing duties –duties on import to neutralize the effects of subsidy also known as anti-subsidy duties

30. China: 28% import tariff on US soybeans
Some protectionist measures on Soybeans & palm oil around the world
China: 28% import tariff on US soybeans
Argentina: 15% export tax on biodiesel
Argentina: 18% tax + 4 Peso to 1 USD on SB
U.S: 341.38% on Indonesia biodiesel imports
U.S: 159% on Argentina biodiesel imports
India: 35% on crude and 45% on refined soft oils imports
EU: Anti-subsidy investigation on Argentina SME biodiesel imports

31. Impact : Tariffs Displaced 370K tons of Malaysia CPO & Olein export to India

32. Impact: Palm oil import fell the most from the tariff increase
Impact: Palm oil import fell the most from the tariff increase. SFO gained the most share
Total edible oil imports expected to rise to million tons from million in
Palm oil imports likely to rise to 9.30 million tons from 8.50 million in

33. Impact: India CPO import jumped sharply in Aug on lower prices and stocks

34. Impact: Fall in rupiah by 9. 30% helped to keep cpo prices down by 15

35. Impact: Malaysia zero Cpo export tax

36. Impact : Soybean prices fell 19% in the last 5 months on high tariffs from china

37. Impact : U. S soybean export to china fell 8
Impact : U.S soybean export to china fell 8.50 million tons from the previous marketing year

38. U.S soybean exports to China
Source: Bloomberg Intelligence Report

39. Impact: China tariff on U.S soybean

40. Conclusion
Production - strong palm and soybean production rise is frustrated by trade barriers
Protectionist policies are depressing demand – leading to rise in stocks
Prices are becoming more sensitive to noise on ‘trade talks’ than on actual S&D

41. Year ahead
Price: Benchmark CPO Futures supported RM 2150 to 2250 to Oct but higher RM from Dec to Q
India: Will India import tariffs be revised ?
Biodiesel: Will Malaysia increase biodiesel mandate ?
China – US trade tension plays out. Impact on SB, SBO demand & PO prices
China E10 mandate by 2020

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