CHALLENGES AND OPPORTUNITIES IVY NG, CFA Regional Head of Agribusiness Head of Malaysia Research October 2018

Transcription

1 CIMB Investment CHALLENGES AND OPPORTUNITIES IVY NG, CFA Regional Head of Agribusiness Head of Malaysia Research October 2018 Together

2 Content Section 1 Section 2 Section 3 Section 4 Section 5 Section 6 Section 7 Section 8 Section 9 Key determinants of plantation companies earnings Palm oil s market positioning in the global edible oils and fats Analysis of global oils and fats supply and exports trend Challenges facing the industry from supply perspectives CPO prices performances YTD, below expectations Potential trade disruptions in China and India markets Indonesia /Malaysia biodiesel policy and its potential impact Fundamental and technical view on CPO price Peek into refining industry stats 2

3 Key determinants of palm oil companies earnings Key determinants of palm oil companies earnings prospects: Average selling prices of palm products (CPO and PK) FFB yields of the estates and OER rate from mills (age profile, management, soil conditions, weather and others) Labour costs (minimum wage, availability of skilled workers) Fertiliser prices (potash prices and others) Fuel prices (government policy and international crude oil prices) Headquarter / Infrastructure costs (procurement of raw materials/supplies) New planting costs (impact depreciation costs of estates) Borrowing costs (dependent on capex and land costs/ acquisition costs of estates) Government taxes (export tax, sales tax, cess, windfall and corporate taxes) Downstream earnings prospects (refinery and oleo margins) 3

4 Palm oil is the most widely used edible oils Breakdown of production of edible oils 2017 Breakdown of export of edible oils 2017 Other Vege oils 12% Tallow 4% Other Animal fats 8% Palm oil 31% Rapeseed oil 5% Other Vege oils 10% Other Animal fats Tallow 2% 2% Rapeseed oil 12% Sunflower oil 11% Palm oil 55% Sunflower oil 9% Soybean oil 24% Soybean oil 15% SOURCE: OIL WORLD, CIMB RESEARCH SOURCE: OIL WORLD, CIMB RESEARCH 4

5 Palm oil s rising share in the edible oils supply Palm oil and soybean oil share of global oils and fats supply Palm Oil Soybean Oil 32% 30% 30% 30% 30% 31% 28% 27% 28% 27% 28% 29% 29% 26% 25% 25% 24% 22% 24% 23% 22% 23% 23% 22% 22% 22% 24% 24% 20% SOURCE: OIL WORLD, CIMB RESEARCH 5

6 Analysis of global production of 17 oils and fats ( ) Oils and Fats, ( 000 tonnes) 1996 Mkt share 2006 Mkt share Chges for past 10 yrs Avg Annual chges Share 9 yrs CAGR Palm oil 16, % 37, % 20,977 2,098 39% 9.6% Palm kernel oil 2, % 4, % 2, % 8.8% Soybean oil 20, % 35, % 14,869 1,487 28% 6.3% Cottonseed oil 4, % 4, % % 2.0% Ground nut oil % 4, % (130) (13) 0% -0.3% Sunflower oil 9, % 11, % 2, % 2.4% Rapeseed oil 11, % 18, % 6, % 5.4% Corn oil 1, % 2, % % 2.4% Coconut oil 2, % 3, % % 1.0% Olive oil 2, % 2, % % 3.5% Castor oil % % % 1.0% Sesame oil % % % 2.9% Linseed oil % % % 0.6% Total Veg oils 76, % 126, % 49,712 4,971 93% 5.7% Butter 5, % 6, % 1, % 2.0% Tallow 7, % 8, % 1, % 1.5% Fish oil 1, % % (356) (36) -1% -3.4% Lard 5, % 7, % 1, % 3.0% Total Animal fats 20, % 23, % 3, % 1.8% Grand total 96, % 149, % 53,289 5, % 5.0% SOURCE: OIL WORLD, MPOB, CIMB RESEARCH 6

7 Analysis of global production of 17 oils and fats ( ) Oils and Fats, ( 000 tonnes) SOURCE: OIL WORLD, MPOB, CIMB RESEARCH 2006 Mkt share 2017 Mkt share Chges for past 11 yrs Avg Annual chges Share 10 yrs CAGR Palm oil 37, % 67, % 30,137 2,740 43% 6.1% Palm kernel oil 4, % 7, % 2, % 5.1% Soybean oil 35, % 53, % 18,635 1,694 27% 4.3% Cottonseed oil 4, % 4, % (693) (63) -1% (1.5%) Ground nut oil 4, % 4, % (276) (25) 0% (0.6%) Sunflower oil 11, % 19, % 7, % 5.5% Rapeseed oil 18, % 25, % 6, % 3.2% Corn oil 2, % 4, % 1, % 6.3% Coconut oil 3, % 2, % (702) (64) -1% (2.5%) Olive oil 2, % 2, % % 0.1% Castor oil % % % 2.7% Sesame oil % % (31) (3) 0% (0.4%) Linseed oil % % % 0.8% Total Veg oils 126, % 192, % 66,720 6, % 4.3% Butter 6, % 8, % 1, % 2.0% Tallow 8, % 9, % 1, % 1.2% Fish oil % % (103) (9) 0% (1.1%) Lard 7, % 8, % 1, % 1.3% Total Animal fats 23, % 27, % 3, % 1.4% Grand total 149, % 220, % 70,268 6, % 3.9% 7

8 Analysis of global exports of 17 oils and fats ( ) Oils and Fats ( 000 tonnes) 1996 Mkt share 2006 Mkt share Chges for past 10 yrs Avg Annual chges Share 9 yrs CAGR Palm oil 10,763 39% 30, % 19,237 1,924 65% 12% Palm kernel oil 944 3% 2, % 1, % 11% Soybean oil 4,883 18% 10, % 5, % 9% Cottonseed oil 228 1% % (70) (7) 0% -4% Ground nut oil 252 1% % (41) (4) 0% -2% Sunflower oil 2,648 10% 4, % 1, % 6% Rapeseed oil 1,781 6% 2, % % 2% Corn oil 600 2% % % 4% Coconut oil 1,391 5% 1, % % 4% Olive oil 306 1% % % 10% Castor oil 262 1% % % 2% Sesame oil 23 0% % % 4% Linseed oil 138 0% % (27) (3) 0% -2% Total Veg oils 24,219 87% 53, % 29,615 2, % 9% Butter 554 2% % % 3% Tallow 2,150 8% 2, % 3 0 0% 0% Fish oil 770 3% % (77) (8) 0% -1% Lard 139 0% % (34) (3) 0% -3% Total Animal fats 3,613 13% 3, % % 0% Grand total 27, % 57, % 29,708 2, % 8% SOURCE: OIL WORLD, MPOB, CIMB RESEARCH 8

9 Analysis of global exports of 17 oils and fats ( ) Oils and Fats ( 000 tonnes) 2006 Mkt share 2017 Mkt share Chges for past 11 yrs Avg Annual chges Share 10 yrs CAGR Palm oil 30,000 52% 49,161 56% 19,161 1,742 64% 5% Palm kernel oil 2,390 4% 3,237 4% % 3% Soybean oil 10,435 18% 11,553 13% 1, % 1% Cottonseed oil 158 0% 120 0% (38) (3) 0% (3%) Ground nut oil 211 0% 270 0% % 2% Sunflower oil 4,470 8% 10,657 12% 6, % 9% Rapeseed oil 2,103 4% 4,605 5% 2, % 8% Corn oil 888 2% 1,030 1% % 1% Coconut oil 1,987 3% 1,610 2% (377) (34) -1% (2%) Olive oil 733 1% 940 1% % 3% Castor oil 314 1% 590 1% % 7% Sesame oil 34 0% 50 0% % 4% Linseed oil 111 0% 110 0% (1) (0) 0% (0%) Total Veg oils 53,834 94% 83,933 96% 30,099 2, % 5% Butter 755 1% 800 1% % 1% Tallow 2,153 4% 1,650 2% (503) (46) -2% (3%) Fish oil 693 1% 800 1% % 1% Lard 105 0% 120 0% % 1% Total Animal fats 3,706 6% 3,370 4% (336) (31) (1%) (1%) Grand total 57, % 87, % 29,763 2, % 4% SOURCE: OIL WORLD, MPOB, CIMB RESEARCH 9

10 Major producers and exporters of palm oil World major producers of palm oil in 2017 Nigeria 1% Colombia 2% Others 9% World major exporters of palm oil 2017 Honduras 1% Guatemala 1% PNG 1% Others 7% Thailand 4% Malaysia 30% Indonesia 54% Malaysia 34% Indonesia 56% SOURCE: MPOB, CIMB RESEARCH SOURCE: MPOB, CIMB RESEARCH 10

11 Analysis of major producers of palm oil ( ) World major producers of palm oil ( 000 tonnes) Country 1996 Share 2006 Share 2017 Share 10 yr cagr 20 yr cagr Indonesia 4, % 16, % 36, % 8.5% 11.0% Malaysia 8, % 15, % 19, % 2.3% 4.4% Thailand % % 2, % 11.0% 9.8% Colombia % % 1, % 8.5% 7.1% Nigeria % % 1, % 2.1% 2.0% Ecuador % % % 7.3% 6.9% PNG % % % 6.0% 4.5% Honduras % % % 9.0% 11.0% Guatemala % % % 16.2% 14.7% Cote d Ivoire % % % 5.6% 2.8% Brazil % % % 9.2% 8.5% Others % 1, % 2, % 6.1% 4.8% Total 16, % 37, % 67, % 6.1% 7.4% SOURCE: OIL WORLD, MPOB, CIMB RESEARCH 11

12 Analysis of major exporters of palm oil ( ) World major exporters of palm oil ( 000 tonnes) Country 1996 Share 2006 Share 2017 Share 10 yr cagr 20 yr cagr Indonesia 1, % 12,540 42% 27, % 8.1% 14.4% Malaysia 7, % 14,423 48% 16, % 1.4% 4.2% Colombia % 214 1% % 12.7% 17.3% Guatemala na na 109 0% % 19.6% na PNG % 362 1% % 3.9% 3.5% Honduras na na 131 0% % 14.4% na Cote D' Ivoire % 109 0% % 6.5% 3.7% Others 1, % 2,011 7% 2, % 2.9% 3.6% Total 10, % 29, % 49, % 5.1% 7.9% SOURCE: OIL WORLD, MPOB, CIMB RESEARCH 12

13 Challenges 1 : 2017 FFB yield below historical averages Malaysia FFB Yield, tonnes/ha Tonnes/ha 21 FFB yield 20 year average Average : SOURCE: MPOB, CIMB RESEARCH 13

14 Challenges 2 : Expansion opportunities in Malaysia ( 000 ha) 300 Net change in planted area Average Average : k ha SOURCE: MPOB, CIMB RESEARCH 14

15 Opportunity : Age profile of Malaysian estates in 2016 Total Planted Oil Palm Area in 2016 = 5.74m hectares >25 Years 7% 0-2 Years 7% Years 12% 3-5 Years 14% Years 19% 6-10 Years 23% Years 18% SOURCE: OIL WORLD, CIMB RESEARCH 15

16 Challenges 3 : CPO prices CPO and palm kernel prices since 2001 (RM/MT) 4,500 CPO Palm kernel Drought in South America 4,000 3,500 3,000 CPO 9M2018 avg price: RM2,338/MT 9M2018 price band: RM2,060 2,547/MT 2017 avg price: RM2,783/MT 2017 price band: RM2,338-3,344/MT GFC Bumper oilseeds production El Nino 2,500 2,000 1,500 1, PK 9M2018 avg price: RM1936/MT 2017 avg price: RM2,536/MT Record stockpile in Malaysia SOURCE: BLOOMBERG, CIMB RESEARCH 16

17 Palm oil inventory in Malaysia at 8-month high Malaysian palm oil inventory Key importers of Malaysian palm oil ('000 tonne) (000 tonnes) Sep-18 Aug-18 mom chg China % India % 2800 EU % Pakistan % 2600 US % Others % 2400 Total 1,619 1,100 47% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (000 tonnes) 9M18 9M17 yoy chg China 1,199 1,344-11% India 1,888 1,651 14% EU 1,501 1,428 5% Pakistan % US % Others 6,292 6,708-6% Total 12,147 12,238-1% SOURCE: MPOB, CIMB RESEARCH SOURCE: MPOB, CIMB RESEARCH 17

18 Production in 2Q/3Q18 missed expectation Malaysia : CPO production fell below expectation in 2Q and 3Q18 Malaysia : CPO exports weaker than expected ('000 tonnes) 2, ('000 tonnes) , , , , , ,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 800 Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec SOURCE: MPOB, CIMB RESEARCH SOURCE: MPOB, CIMB RESEARCH 18

19 El Nino and Malaysia CPO production Historical impact of El Nino on Malaysia s palm oil yield and production Type Period Intensity Chge in FFB yield Chge in CPO yield CPO output growth El Nino May 82-Jun 83 Strong -10.5% -10.4% -14.1% El Nino Aug 86-Feb 88 Moderate -22.8% -23.1% -0.2% El Nino May 91- Jun92 Moderate -0.1% -1.4% 3.8% El Nino Sep 94-May 95 Moderate 2.8% 2.0% 8.2% El Nino May 97 - Apr 98 Strong -16.3% -16.8% -8.3% El Nino May 02-Feb 03 Moderate 5.7% 4.5% 12.1% El Nino Jul 04-Jan 05 Weak 1.5% 1.9% 7.1% El Nino Sep 06-Jan 07 Weak -2.9% -2.5% -0.4% El Nino Jul 09-Apr 10 Moderate -6.1% -6.1% -3.3% El Nino Oct 14-Jun 16 Strong -13.9% -15.1% -13.1% SOURCE: MPOB, CIMB RESEARCH 19

20 Malaysia palm oil supply to decline to 19.6m tonnes in 2018 We project Malaysia palm oil output to decline to 19.6m tonnes (-1.5% yoy) in 2018 due to weaker than expected FFB yields in selected states (2017 : +15% to 19.9m tonnes) Malaysia palm oil output (by states) Output yoy Market share States 9M17 9M18 change 9M17 9M18 JOHOR 2,158,637 2,218,548 3% 15% 16% KEDAH 230, ,747 (18%) 2% 1% KELANTAN 210, ,774 (4%) 1% 1% NEGERI SEMBILAN 467, ,668 5% 3% 4% PAHANG 1,965,390 1,954,317 (1%) 14% 14% PERAK 1,541,526 1,350,432 (12%) 11% 10% SELANGOR 393, ,740 (2%) 3% 3% TERENGGANU 329, ,932 2% 2% 2% OTHER STATES 154, ,482 2% 1% 1% P. MALAYSIA 7,451,144 7,280,640 (2%) 53% 52% SABAH 3,704,321 3,603,189 (3%) 26% 26% SARAWAK 2,978,016 3,013,452 1% 21% 22% SABAH/SARAWAK 6,682,337 6,616,641 (1%) 47% 48% MALAYSIA 14,133,481 13,897,281 (2%) 100% 100% SOURCE: MPOB, CIMB RESEARCH 20

21 Major consumers and importers of palm oil in 2017 World major consumers of palm oil in 2017 World major importers of palm oil 2017 India 14% India 19% Others 49% Indonesia 14% Others 46% Pakistan 4% China 8% EU 11% Nigeria 3% Pakistan 6% China 10% EU 16% SOURCE: MPOB, CIMB RESEARCH 21

22 Major consumers of palm oil World major consumers of palm oil ( 000 tonnes) Country 2002 Share 2006 Share 2017 Share 10 yr cagr 14 yr cagr India 3, % 3, % 9, % 11.7% 7.1% Indonesia 3, % 3, % 9, % 9.4% 8.2% EU 3, % 4, % 7, % 5.1% 5.6% China 2, % 5, % 5, % -0.8% 4.7% Pakistan 1, % 1, % 2, % 5.6% 5.3% Nigeria % 1, % 2, % 7.2% 6.8% Thailand % % 2, % 11.7% 10.7% US % % 1, % 8.9% 14.8% Colombia % % 1, % 7.9% 6.1% Russia % % % 5.0% 4.9% Others 8, % 14, % 19, % 3.2% 5.9% Total 25, % 36, % 61, % 5.4% 6.5% SOURCE: MPOB, CIMB RESEARCH 22

23 Major importers of palm oil World major importers of palm oil ( 000 tonnes) Country 1996 Share 2006 Share 2017 Share 10 yr cagr 20 yr cagr India 1, % 3,198 11% 9, % 11.4% 10.6% EU 1, % 4,593 16% 7, % 5.0% 7.2% China 1, % 5,462 19% 5, % -0.8% 6.7% Pakistan 1, % 1,768 6% 2, % 5.1% 5.0% Bangladesh % 887 3% 1, % 5.1% 13.9% USA % 625 2% 1, % 8.4% 12.8% Others 5, % 13,577 46% 17, % 2.4% 6.3% Total 10, % 29,223 76% 43, % 4.1% 7.2% SOURCE: MPOB, CIMB RESEARCH 23

24 India s consumption of edible oils and stocks India consumption of edible oils ( 000 tonnes) India palm oil stock at domestic ports Edible oils Consumption Market share ('000 tonnes) 2800 Palm oil 9,216 40% Soybean oil 5,132 22% Butter 2,614 11% Rapeseed oil 2,270 10% Groundnut oil 1,683 7% Cotton oil 1,003 4% Others 1,301 6% Total 23, % 1000 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 SOURCE: OIL WORLD, CIMB RESEARCH SOURCE: SOLVENT EXTRACTORS ASSOCIATION OF INDIA, CIMB RESEARCH 24

25 Historical India duties Historical revisions of import duties on CPO and refined palm oil Date CPO RBD palm oil Duty gap 23-Mar % 54.1% 7.7% 20-Mar % 28.3% 7.7% 01-Apr % 7.7% 7.7% 23-Jan % 7.7% 5.1% 10-Jan % 10.3% 7.7% 25-Dec % 15.0% 7.5% 18-Sep % 20.0% 7.5% 23-Sep % 15.0% 7.5% 11-Aug % 25.0% 10.0% 17-Nov % 40.0% 10.0% 01-Mar % 54.0% 10.0% SOURCE: SOLVENT EXTRACTORS ASSOCIATION OF INDIA, CIMB RESEARCH 25

26 India import duties on palm oil India raises import duties on CPO from 15% to 30% and refined palm oil from 25% to 40% on 17 Nov It also raised the import duties for soybean, soybean oils, sunflower oils and other edible oils On 1 Mar 2018, India raised import duties on CPO to 44% and refined palm oil to 54%, the highest since 23 Mar 2007 This represents the third increase in duties over the past seven months Negative for palm oil producers as it make CPO costlier in India and less competitive against other edible oils in Indian market. This could lead to weaker demand for palm oil Positive for India edible oil refiners (able to crush oilseeds and boost profit margin), government (higher tax revenue) and farmers (higher domestic oilseed prices) Talks of potential cut in import duties on palm oil in later part of the year will be positive for CPO 26

27 India s imports of major edible oils India imports of major edible oils ( 000 tonnes) Palm Oil Soy Oil Sunflower Oil SOURCE: SOLVENT EXTRACTORS ASSOCIATION OF INDIA, CIMB RESEARCH 27

28 CPO price competitiveness against soya oil CPO vs soybean oil prices (US$ per tonne) 1,400 (US$ per tonne) 500 1, ,000 CPO (LHS) Soybean Oil (LHS) year average discount - US$123 Discount (RHS) Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 0 SOURCE: OIL WORLD, BLOOMBERG, CIMB RESEARCH 28

29 China s consumption of edible oils and stocks China consumption of edible oils Edible oils Total usage Market share China palm oil stock at domestic ports (Palm oil stocks at China domestic ports - '000 tonnes) 1,600 Soya oil 14,139 39% Rapeseed oil 6,499 18% Palm oil 5,126 14% Lard 3,613 10% Ground nut oil 1,906 5% Sunflower oil 1,173 3% Others 4,129 11% Total 36, % 1,400 1,200 1, Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 SOURCE: OIL WORLD, CIMB RESEARCH SOURCE: COFEED, CIMB RESEARCH 29

30 Potential impact of US-China trade war China has imposed a 25% import tariff on soybean imports from the US in July 2018 The US administration has announced that it will subsidize American farmers for up to $12bn due to the potential impact from higher tariff. Scenario 1 : Chinese crushers source soybean supplies from Brazil and Argentina but this could lead to higher soybean prices from these countries vs. US soybeans. Scenario 2 : Chinese crushers source other oilseeds which could lead to higher prices as well Scenario 3 : Chinese farmers could import meal and oil directly due to lower tariff of 5% and 9% vs. Proposed 25% on beans (currently 3%) Scenario 4 : China crushed less beans/oilseeds as the higher costs lead to weaker demand. This led to lower edible oils produced in China, leading to higher imports of other edible oils, including palm oil 30

31 Impact from the higher Chinese tariffs on US soy exports US Soybean Exports Volumes to China as a % of Total US Soybean Exports Global Soybean Stock Levels (% of Total US Soybean Exports) 90% 80% 70% 60% 50% 40% 30% m tonnes Sep Aug Sep Sep Sep Aug Aug mom chg yoy chg 2017 yoy chg China (4%) 14% % US (8%) 14% % Argentina % (9%) 35.6 (13%) Brazil (5%) (8%) 26.5 (9%) Others % (2%) 5.6 (3%) Total (1%) (1%) 97.0 (1%) 20% 10% 0% SOURCE: USDA, CIMB RESEARCH SOURCE: BLOOMBERG, CIMB RESEARCH 31

32 Usage of palm oil in 2017 (65m tonnes) Energy 18% Others 3% Chemicals 9% Food use 70% SOURCE: OIL WORLD, CIMB RESEARCH 32

33 Indonesia vs. Malaysia biodiesel mandate Malaysia biodiesel mandate It was reported that Malaysia is considering raising its biodiesel mandate to 10% from 7% in second half of We estimate Malaysia s biodiesel consumption at around 536,786 tonnes in 2017 based on B7 blend. As such, we estimate Malaysia could potential consume 766,837 tonnes of biodiesel if it adopts B10 This represents additional biodiesel usage of approx 230,000 tonnes, or 1.2% of projected CPO production for Malaysia of 19.6m tonnes in 2018E Indonesia biodiesel mandate Indonesia expanded its biodiesel mandate of 20% to include nonsubsidised diesel users starting 1 Sep and plans to stepped up enforcement. This is expected to translate to annual biodiesel usage of 6 to 6.2m kls in 2018 from projected 4m kls in 2018 by Indonesia govt (vs. 2.57m kls for 2017) or 17% of Indonesia s CPO output in We expect Indonesia to achieve around m tonnes of biodiesel usage in 2018, an improvement from 2.5m tonnes in 2017 in view of the government s efforts to raise biodiesel usage to reduce diesel imports. 33

34 Levy on palm oil exports from Indonesia Levy will be collected regardless of CPO price level to partly subsidise biodiesel usage in Indonesia Export tax on palm oil will only be collected when CPO price exceeds US$750 per tonne. Products Export levy RBD Palm Oil 20 RBD Palm Stearin 20 RBD Palm Kernel Oil 20 RBD Palm Kernel Olein 20 RBD Palm Kernel Stearin 20 RBD Palm Olein (In package of 25 kg or less) 20 Palm-based Biodiesel (with Methyl Ester > 96.5%) 20 Split Fatty Acid from CPO, CPKO (with free fatty acid of > 2%) 30 Split PFAD (with free fatty acid of >70%) 30 Split PKFAD (with free fatty acid of > 70%) 30 Products (US$/tonne) Export levy RBD Palm Olein 30 Palm Fatty Acid Distillate (PFAD) 40 Palm Kernel Fatty Acid Distillate (PKFAD) 40 Crude Palm Oil 50 Crude Palm Kernel Oil 50 Crude Palm Olein 50 Crude Palm Stearin 50 Crude Palm Kernel Olein 50 Crude Palm Kernel Stearin 50 SOURCE: BLOOMBERG, MINISTRY OF FINANCE WEBSITE 34

35 Discretionary biodiesel demand viability Estimated CPO biodiesel breakeven price against crude oil Brent crude w/o subsidy CPO breakeven with subsidy Ex-rate w/o subsidy CPO breakeven with subsidy (US$/barrel) (US$/tonne) (US$/tonne) US$/RM RM/tonne RM/tonne ,122 1, ,429 2, ,737 2, ,044 2, ,352 2, ,382 3, ,659 3, ,966 3,590 * Assumes US extends its biodiesel subsidy of US$1 per gallon (US$300 per tonne) and biodiesel producers get 50% share of this 35

36 Price Outlook for rest of 2018 Current sentiment in palm oil market is bearish due to: high palm oil stocks in Malaysia and Indonesia; rising palm oil supplies as we are in the high production season; higher import duties on palm oil from India; good soybean harvest from the US concerns over US-China trade war impact on global economy. We project CPO price to trade in the range of RM2,100 to RM2,400 in Oct 18 and average RM2,320 per tonne in 2018 (9M18 : RM2,338 per tonne/ 2017 : RM2,783 per tonne). We project palm oil prices to recover in 2019 due to: Higher biodiesel consumption from Indonesia driven by mandates and enforcement Potential increase in discretionary biodiesel usage due to higher oil prices Potentially lower than expected CPO supply if El Nino occurs (70% probability) Replanting program and slower new plantings in Indonesia and Malaysia Potential reduction in import duties on palm oil by India 36

37 Technical chart view for CPO price CPO is in the final leg to complete this multi-year sideways pattern. It may be possible that CPO has found the low for the year at 2,137, where the triangle support trend line lie. If CPO breaks this said low in the weeks ahead, then look for further weakness towards the 2,050-2,090 or 1,925 support levels. Our LT bullish view would be incorrect if prices fell below 1,863. Closing above the 50-week EMA (currently at 2,375) would confirm that a medium-term bullish run is underway. Strong resistance seen at 2,590-2,850 SOURCE: BLOOMBERG, CIMB RESEARCH 37

38 Malaysian palm oil refining industry Malaysia : Number of refineries and capacities (tonnes) as at December 2017 State Number of refineries Processing Capacity (tonnes) Johor 14 7,153,200 Perak 3 841,500 Penang 3 567,000 Selangor 13 5,154,000 Other states 2 1,759,500 Pen Malaysia 35 15,475,200 Sabah 12 8,738,000 Sarawak 6 3,115,000 East Malaysia 18 11,853,000 Total 53 27,328,200 SOURCE: MPOB, CIMB RESEARCH 38

39 Malaysian palm oil refining industry Malaysian refining utilisation rate in 2017 and % % 71.7% 71.4% 73.2% 71.5% 70.0% 66.4% 68.9% 72.7% 70.1% 68.2% 65.0% 60.0% 55.0% 66.2% 59.6% 55.4% 64.2% 60.6% 62.6% 64.9% 67.0% 62.9% 55.8% 67.2% 50.0% 49.6% 45.0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec SOURCE: MPOB, CIMB RESEARCH 39

40 Breakdown of CPO and processed palm oil exports CPO PPO 100% 90% 82% 80% 70% 60% 50% 40% 30% 20% 10% 0% 66% 49% 38% 26% 30% 27% 24% 19% 19% 12% 9% 11%10% 6%2% 3% 2% 3% 4% 11% 12%16% 14%15% 16%16% 22% 16% 21% 2%2% 1%1%1%0% 1% 1% 3% 4% 0% 0%0% 0% M18 SOURCE: MPOB, CIMB RESEARCH 40

41 Thank you 41

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