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Fundamental Approach to Price Forecasting 2019

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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


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