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

2. 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, NOV 2011

3. 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 , DUE MAINLY TO ADVERSE WEATHER CONDITIONS
Ganling
6TH CIOC, GUANGZHOU, NOV 2011

4. 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, NOV 2011

5. RAPID AREA EXPANSION BOOSTS GLOBAL PALM OIL PRODUCTION AND SUPPLY
Malaysia : mn ha Indonesia : 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, NOV 2011

6. 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, NOV 2011

7. 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, NOV 2011

8. 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, NOV 2011

9. 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), MTHS (floral abortion) AND 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, NOV 2011

10. 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, NOV 2011

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

12. 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, NOV 2011

13. 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, NOV 2011

14. 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, NOV 2011

15. 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 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 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 With good rainfall from mid-2010 to mid 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, NOV 2011

16. 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, NOV 2011

17. EL NINO AND PALM OIL PRICES
EL NINO EVENT IS USUALLY FOLLOWED BY A SPIKE IN PALM OIL PRICES (UP 15% -125% )
RECENT EL NINO: PRICE UP BY 70% TO PEAK AT RM PMT IN FEBRUARY 2011
Ganling
6TH CIOC, GUANGZHOU, NOV 2011

18. 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, NOV 2011

19. 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, NOV 2011

20. 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, NOV 2011

21. 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 PMT UNTIL MAY/JUNE 2011
PRICES MAY THEN RETRACE FURTHER TO RM 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, NOV 2011

22. RECENT FCPO PRICE TREND AND PRICE OUTLOOK - 2012
PRICE SPIKE FOLLOWING EL NINO INDUCED SUPPLY TIGHTNESS-PEAK IN FEB 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 PMT (USD )
Ganling
6TH CIOC, GUANGZHOU, NOV 2011

23. 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 SHORT TERM DECLINE IN PRODUCTION AND MAY PROVIDE SOME SUPPORT TO PRICES IN THE NEAR TERM
MINIMAL WEATHER RISK TO PALM OIL PRODUCTION IN 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 (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, NOV 2011

24. Thank you
By: A.H.LING , Director, Ganling Sdn Bhd, Sandakan, Malaysia
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, NOV 2011