The important drivers in edible oils

Transcription

1 The important drivers in edible oils Dr Julian Conway McGill GlobOil Mumbai 2018 LMC International. All rights reserved.

2 Introduction I am going to discuss what in our view are the four main global drivers for the edible oils market: 1. Mr Trump s ongoing soybean battles. 2. The peculiar recent palm production trends. 3. The free market use of biofuels. 4. The risk of a crude oil price collapse. 2

3 1. Mr Trump s Soybean Battles

4 The US trade war and biodiesel waivers have hit soybeans US$ per tonne, soybean price US$/tonne 1. The trade war has reduced US soybean prices against rival origins (such as Argentina). 2. The use of waivers to exempt many small US refineries from biofuel mandates has cut US biodiesel demand and reduced prices - despite a rise in US WTI crude oil prices. Argentine FOB $ premium over US Gulf prices US soy oil and WTI crude oil prices Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Argentine premium Argentine FOB US Gulf Soybean oil (CBOT) Crude oil (WTI) 4

5 2. The Peculiarity of Palm Production

6 Palm oil output in Indonesia and Malaysia are out of sync Year-on-year growth in quarterly output, % Quarterly year-on-year crude palm oil (CPO) output growth 40% 30% 20% 10% 0% -10% -20% -30% -40% Q1.09 Q1.10 Q1.11 Q1.12 Q1.13 Q1.14 Q1.15 Q1.16 Q1.17 Q1.18 Malaysia Indonesia Malaysian and Indonesian palm oil output usually follow a similar pattern. In 2016 the El Niño caused an extreme drop in yields, but the weather has since been more forgiving. Yet, Malaysian yields remain low. While Indonesia which has seen better output growth is following a new pattern. 6

7 3. The Free Market use of Biofuels

8 Free market biofuels is holding up the palm oil price Vegetable and Crude Oils (US$ tonne) Premium over Brent/WTI, US$ per tonne 1. Since 2007 EU oils prices have traded in a range above Brent petroleum. Today palm oil is being supported by the crude oil price 2. In South East Asia palm oil is now competitive as a fuel source. In America the soy oil spread over crude oil has also narrowed putting pressure on palm Monthly prices of main vegetable oils and crude oil at Rotterdam (US$/tonne) 2,100 Daily difference between crude oil and palm and soybean oil prices (US$/tonne) 600 1,800 1,500 1, Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Crude Palm Oil Rapeseed Oil Sunflower Oil Brent Crude Oil Soybean Oil Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Palm oil at Rotterdam Palm oil inside Indonesia Decatur soybean oil 8

9 4. Is there a Risk of a Crude Oil Collapse?

10 OPEC cut-backs have handed market share to US shale Output from main oil fields, mn bbl./day Shale oil output and West Texas Intermediary (WTI) crude oil prices, (bbl/day and US$/bbl) WTI, $ per barrel Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Total shale oil output, bbl./day WTI, $/bbl (RH axis) 0 10

11 Conclusions 1. The trade war and waivers have hit soybean oil prices. 2. Indonesian and Malaysian palm production is out of sync, but stocks will rise on good Indonesian output. 3. The crude palm oil price despite pressure from soybean oil is being supported by free market biodiesel demand. 4. Unless the crude oil prices collapses. 11

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