Aurelia Britsch, Senior Commodities Analyst
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Outline
1.
Palm Oil Price Forecast: Prices To Remain On An Uptrend In The Medium Term
2.
Supply Outlook: Slowdown In Production Growth
3.
Demand Outlook: Developing Countries Driving Growth
4.
Palm Oil Companies: Lasting Profitability Woes In 2015
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Palm Oil Prices: Subdued In 2015 MYR/tonne, ave
•
Spot 2,162
Short-term 2,100 - 2,400
2015f 2,350
2016f 2,425
2017f 2,525
2018f 2,625
2019f 2,700
In 2015, prices will remain below 2014 highs, as the market will only tighten slightly in 2014/15. Moreover, large global oilseed supply will limit price gains. MDE Palm Oil Prices (MYR/tonne)
Palm Oil/Soy Oil Price Ratio
4,500
80
4,000
75
3,500
70 65
3,000
60
2,500
55
2,000
50
1,500
45
1,000
40
2015-2019 = BMI Forecasts
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Supply Outlook: Slowdown In Production Growth Indonesia – Palm Oil Planted Area
•
Four dynamics will cause production growth to slow to 3.5% annually (2015-2019), from 6.1% (2005-2014).
12
10
10
8
8
6
6
•
•
Strong limits to plantation expansion: Malaysia will keep 50% of the country forested, and Indonesia imposed a forest moratorium in 2011.
4
4 2
2
0
0 2003
2005
2007
2009
Planted Area (LHS, Mn ha)
Stagnating yields, but these could improve due to replanting programmes in Malaysia.
2011
2013
2015f
Growth (RHS, %)
Malaysia & Indonesia Palm Oil Yields 22.5
•
Higher operating costs, especially in terms of labour.
22 21.5 21
•
Subpar infrastructure in Indonesia, especially for ports.
20.5 20 19.5 19 2009 2010 2011 FFB Yield (t/mature ha)
2015 = BMI Forecasts
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2012 2013 Palm OER (%)
Supply Outlook: Stable Production Distribution Palm Oil Production (% Total)
•
We forecast a production slowdown in both countries, but Indonesia will outperform Malaysia in terms of growth: •
•
Indonesia will remain the largest player and move up the value chain.
Output in secondary producers will remain low in spite of growing investment in new markets. •
•
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Latin America Asia others Malaysia Indonesia
2014
2019f
BMI Operational Risk Indexes & GDP forecasts (% chg)
Africa: Cameroon and Côte d'Ivoire as outperformers. Latin America: Colombia will see the strongest growth globally.
Africa
Cameroon Sierra Leone Côte d'Ivoire Nigeria Indonesia Malaysia
Operational Risk Index
Average GDP Growth 2014-2018
34 31 36 37 49 70
5.2 5.8 8.7 6.7 6.0 4.5
2015-2019 = BMI Forecasts. Note: For operating risks, the scale goes from 1 to 100, 100 being the best score.
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Demand Outlook: Emerging Markets Driving Growth •
Palm Oil Consumption (average % growth 2015-2019)
Global demand will grow faster than production, driven by two key trends: • •
•
Strong growth in emerging markets. Increased biofuel use.
7 6 5 4 3 2 1 0
We forecast robust demand growth in emerging markets due to several dynamics: Vegetable Oil Consumption Per Capita (kg/year)
• • • •
Low consumption per capita. Supply deficit in vegetable oils. Increase of food spending. Increase of manufactured food and fast food products, heavy consumers of palm oil.
30 25 20 15 10 5 0
2015-2019 = BMI Forecasts
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Biodiesel Demand: Don’t Believe The Hype Indonesia – Palm Oil Consumption By Type (mn t)
•
Biodiesel will be the next driver of demand growth in Malaysia and Indonesia.
10
Food Use
Industrial
8
•
•
Ambitious blending mandates: B7 in Malaysia, B10 in Indonesia (soon B15?). But the impact on demand will be lower than anticipated as the drop in oil prices has made biodiesel use clearly unattractive.
6 4 2 0 2003
2005
2007
2009
2011
2013
2015f
Palm Oil & Brent Oil - Price Difference (USD/t) 500
•
Developed market demand for palm-based biofuels is slowing down, due to regulatory changes. •
Ongoing reform of the EU’s biofuel policy: 6% cap on food-based biofuels.
400 300 200 100 0 -100 -200 -300 Jun-08
2015 = BMI Forecasts
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Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Palm Oil Sector: Lasting Profitability Woes Malaysia Utilisation Rate Of Palm Oil Facilities (%)
•
Challenging operating environment for palm oil companies in 2015. •
•
Low prices, rising costs and refining overcapacity will weigh on profitability.
Upstream operations will continue to fare better than the refining segment.
105 85 65 45 Jan-12
Jan-13 FFB Mills Refineries
Jan-14 Oleochemicals
Jan-15
Select Palm Oil Companies Average Operating Margin (%)
•
Profitability will remain higher in Indonesia than in Malaysia. •
Stronger growth in CPO production in 2015, lower production costs and moderate help from the ongoing changes to the biodiesel policy (new subsidies).
42 37 32 27
22 17 12 FY09 Upstream
Sources: MPOB, Companies Results.
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FY10
FY11 Integrated
FY12
FY13
Malaysia
FY14 Indonesia
Key Takeaways •
Palm oil prices will remain weak in 2015, but will start picking up from 2016, as global surpluses decline.
•
Production growth will slow in the two largest producers • Indonesia outperforming Malaysia. • Secondary producers will maintain negligible output levels in the medium term
•
Demand will remain robust, driven by developing markets and somewhat by biodiesel use.
•
Profitability in the sector will remain lacklustre in 2015 but should improve beyond.
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