1. Fundamental Approach to Price Forecasting 2019
By Dorab E Mistry
Godrej International Limited

2. Congrats TEFLAS & SEA
Heartiest congratulations to TEFLAS and SEA on this International Conference
Dubai is now the Centre for the fastest growing markets for Veg Oils
Dubai has a vibrancy and a vitality that is unique. Tefla’s and SEA have recognised that

3. IPOB–SEA-SOLIDARIDAD
Historic MOU signed on 16 July 2018 in Jakarta between Indonesian Palm Oil Board, Solvent Extractors Association of India and SOLIDARIDAD to promote ISPO
SEA working with Malaysia to promote MSPO too.

4. My approach to forecasting
Study the Supply and Demand fundamentals
Take an over-view of the world economy
Look at major consuming countries and their economic outlook and currencies
Finally I draw on my experience and contacts in the trading community

5. Background
Very strong recovery in Palm production, particularly in Indonesia in 2018
Earlier burdensome stocks in Malaysia
Very big soybean crops in North and South America
Very big Sunseed crops in Ukraine & Russia

6. Background Indian Import duties anomaly
Persistent Betrayal of Bio Fuels by Trump Admin
Excellent pro-active bio fuel measures by Indonesia and Brazil
Strong USD -Weak consumer currencies
Generally soft commodity outlook

7. Reasons for current low prices
All commodity prices are weak
There is Surplus of most items
World growth is slowing
Too much Palm Oil, Soya Oil and too many Soybeans
Exporting country currencies are weak

8. Trade Wars U S farmers have lost Billions of Dollars of Soybean sales
U S farmers may NEVER regain their old market share
Trade Ware with China may be ending but Trade War with EU may be starting !

9. India – import duties on Palm
On 2 March 2018, India increased import duty on CPO to 48.4% and for RBD Palm Olein to 59.5%
Import duty on soya oil, sun oil and rape oil is now 38% from 14 June
Between 2 March and 14 June, Import duty on soya oil was 33% and on sun oil & rape oil it was 27.5%

10. Latest Indian Import Duties
From 1st Jan 2019 Indian Import Duties on Palm are as follows:
CPO – 44%
RBD Olein – Malaysian – 49.5%
RBD Olein – others – 55%

11. Will Indian Duties change
India is in the midst of Elections
Palm refining is very painful in India
The differential in import duty between Crude and Refined Palm needs to be expanded to protect the Indian Refining Industry.

12. Palm Prospects
In 2018 Malaysia Palm production was 19.5 mln mt. and Indonesia produced 42 mln mt
Higher production in other countries like Thailand and in Central America also
In 2018, World production of Palm oil was higher by 5 mln mt over 2017

13. Palm Prospect 2019
In 2019, World Palm oil production may rise by less than 3 mln mt
Older trees are suffering from Stress due to high productivity in 2018
Low prices hurt small growers who cut fertiliser usage from August 2018 onwards
Will this factor hurt production?

14. Palm Production Prospects
Malaysia will be hurt more by production problems in 2019 due to the older age of its plantations
We need to watch April and May closely
I have raised my current estimate for 2019 Malaysian production to 20 mln tonnes and Indonesia remains at 44 mln tonnes

15. Palm Prospects 2019
From about July – August 2018, in Malaysia we had a High Cycle for Palm production. This High Cycle will come to an end around Feb-March After that the trees will require a period of rest
Therefore one cannot be too optimistic about Second Half 2019 production

16. Palm Stocks 2019 Stocks in Malaysia as well as Indonesia are falling
Thanks to the B20 Bio Diesel mandate and its strong implementation in Indonesia, stocks there are comfortable
Malaysian Stocks should fall end April, May and June and then recover

17. Palm Bio Diesel holds key
Indonesian bio diesel producers are operating at full capacity. They have very little for export. Annual run rate could be as high as 7 mln mt
Malaysia has mandated B10 only for commercial vehicles. Local consumption is low and it has been exporting

18. Other Vegetable Oils
The resilience of Sunseed crops in Russia and Ukraine has surprised me
Sunseed are not affected by the Trade War
Are we going to have a Fifth year of massive Sunseed crops ?
Sun oil will have to take share from soya oil if production is larger than 2018

19. Rapeseed
Rapeseed oil is losing market share due to its premium over soya oil
Europe, Canada and Australia are not able to increase Rapeseed production
China and Canada have trade spat at present
In Europe Rape oil will lose to other oils in bio diesel usage

20. CHINA
ASF is a big problem in China. Feed demand is weak. Soybean crush will be down.
China will also import less Rapeseed and Rape oil
Palm has an opportunity in China
Palm bio diesel also has a chance

21. Soybeans & Soya oil
USA will have the biggest carry over stock of beans in history
Brazil & Argentina will keep challenging US beans even in Mexico due to weak currencies
Chicago bean futures are expensive
Argentina SME exports are critical for soya oil price

22. Soya oil & Bio diesel USA soya oil stocks will be tight
Internal demand for US soya oil is buoyant
Brazil went from B8 to B10 from March Will consume 5 mln mt soya oil
Argentina will also increase soya bio diesel use

23. Indian Imports 000 12-13 17-18 18-19 Soya 1,090 3,050 2,900
Soya , , ,900
Palm , , ,850
Sun , ,550
Others
Total 10, , ,500

24. INDIA No clear signals on 2019 Monsoon
Indian crop yields slowly improving.
Indian Government will protect farmers
General Elections may create some turbulence
Indian imports will be higher by 500,000 mt. Main increase will be Palm

25. INDIA
Indian Oilseed farmers are doing better than other farmers except those growing cereals like Rice and Wheat
Oilseed farmers get close to Minimum Support Price in most states
It is possible that soybean plantings will expand in 2019

26. Potential EL Nino Will a new EL Nino develop from here onwards ?
Currently EL Nino is petering out in the palm belt
El Nino type developments may disrupt normal distribution of monsoon rains in India

27. World Energy Demand
World Energy Demand grew in by more than 3 mln mt as a result of increases in Indonesia and Brazil
Energy Demand in will be interesting due to much higher mandate in Indonesia. The challenge is really in Indonesia – can Indonesia consume 7.5 mln mt of palm in bio diesel ?

28. World Food Demand
World Food Demand for veg oils grows at a steady 3 mln mt annually
and Food Demand also expected to grow 3 mln mt per year

29. World Veg oil Incremental Supply
000 tonnes
Soya oil , ,000
Rape oil
Palm oil , ,000
Others ,000
Total Supply , ,500
Total Demand , ,000

30. Assumptions for Medium Term Price Outlook
Brent crude USD 70 to 90 per barrel
No rate hike in 2019 by FED
World GDP growth in 2019 slower
Some political turmoil in USA
U S Dollar will be gradually weaken

31. Palm Price Outlook We have had a double bottom
BMD futures on 3rd month did not rise to 2400 by March end as forecast
Combined Malaysian & Indonesian stocks will decline to 6 million tonnes soon
However, USD 580 FOB Olein OND looks like a strong barrier

32. Price Outlook
Palm prices look like moving sideways with the carry in the market disappearing gradually. OND looks heavy
Soya oil prices FOB Argentina MJJ rose to 660 FOB, then declined and rose again to USD 630. That level appears to be a resistance

33. Too dependant on Bio diesel
The world is likely to produce over 44 million tonnes of bio diesel in 2019 as per OIL WORLD
So far the Gas Oil Palm Oil spread favours bio diesel
What if that Spread narrows ?

34. Lauric Oils Outlook Coconut Oil supply continues good
CPKO production is higher and non-edible demand is growing only at a steady pace
Stocks of CPKO and CNO are rising
Prices will remain flat

35. Conclusion Prices have been recovering gradually
EL Nino may not come to the rescue
Veg oils are cheap so consumption will expand
GOOD LUCK & GOD BLESS