BMD CPO 3M Futures prices are likely to stay below MYR 2650 and trade weak towards MYR 2200 in the coming 5-6 months time frame. CME SBO 1M Futures prices are likely to trade mixed below USc 34 and extend further weakness towards Usc 29.50/29 in the coming 5-6 months time frame.
Growth driven by revival in manufacturing and industrial activity. Surge in commodity prices in the past year and half aiding the growth. Likely to further deteriorate the global export demand. Potential to cause dip in global economic activity moving ahead. Fed raised the interest rates by 25bp last month. FED had raised US GDP forecasts for 2018 & 2019 to 2.7% & 2.4%, from 2.5% & 2.1% respectively. OPEC production cut remains key supportive factor for the market sentiment. Escalating tensions between Saudi and Iran. Improving profitability of the shale oil producers amid rising production and firm oil prices.
Current growth momentum at the global level is driven mainly by the strong revival in industrial and manufacturing sectors aided by the surge in commodity prices in the past year and half. However, protectionist trade policies from major countries like US and India etc., is resulting in dip in global export demand which can be seen in significant decline in the trade surplus of China in coming months. In this context, the escalating concerns over US - China trade war would further deteriorate the global export demand eventually resulting in dip in global economic activity moving ahead. 5
US international trade (USD bln) Goods Services US trade balance 240 261 261 248 243 US goods trade balance (USDbln) China Mexico Japan Germany Vietnam Others -462-490 -500-505 -568-702 -751-762 -753-811 2013 2014 2015 2016 2017-337 -57-77 -70-21 -140-363 -57-71 -77-26 -159-388 -63-73 -78-33 -128-366 -67-72 -67-34 -147-396 -74-72 -67-40 -162 US trade deficit has been widening for last few years, estimated at $568 Billion for 2017 widest since 2008. 1. It is detrimental to US economy because it is financed with debt. 2. US losing competitiveness and expertise by keeping imports high. 2013 2014 2015 2016 2017 Primary Trade Partner China is the largest trade partner of US, contributing almost 70% to the US goods trade.
Chinese Products Contribution to trade deficit Key Chinese Imports From US (US$ Billion) 20.8% 34.8% Electrical equipment Machinery 1.33 1.37 7.91 15.75 Aircraft and parts Oil seeds 3.8% 6.7% 8.7% Furniture Toys and Sports Apparel and accessories 3.39 7.93 Mineral fuels Wood pulp Copper and products Cereals 25.1% 12.69 Others Up to 60% of the US trade deficit with China is prevalent in electrical equipment and machinery sectors Aircrafts and parts, Oilseeds an Mineral fuels combined contribute to 72% of Chinese imports from US 7
FED had raised the interest rates by 25bp last month, in line with market expectations. Further, FED had raised the GDP forecasts for 2018 to 2.7% from 2.5%, and for 2019 to 2.4% from 2.1%. Forecasts for Fed funds rate for 2019 also revised higher while 2018 kept unchanged indicating likely more rate hikes in 2019 than earlier expected while sticking to the 2018 guidance shall aid Dollar price sentiment for medium term. ECB, meanwhile, has turned neutral from accommodative indicating that the QE would come to an end after the current term (slated till September this year).
Dollar Index (.DXY) is likely to hold above 86.5 on initial weakness ahead of turning higher towards 95.5 in the coming 5 to 6 months. EURUSD spot pair is likely to stay above 1.2150 on initial weakness and extend gains towards 1.25-1.27 ahead of turning weak towards USD 1.17 in the coming 5 to 6 months.
FY 2017-18 fiscal deficit is likely to be at 4% of GDP compared to 3.5% in FY 2016-17 FY 2017-18 current account deficit is likely to be at 1.7% of GDP compared to 0.7% FY 2016-17 However, government released bond issuance calendar for H1 FY 18-19 amounting to INR 2.88 lakh crore, about 48% of its budgeted estimate for this fiscal, lower than the 60-65% in previous years. This is the lowest first-half borrowing in the last 10 years in percentage terms indicating government s willingness to take the fiscal consolidation path which should aid medium term sentiments.
Current Account Indian basket Crude oil price up by 18% last fiscal (56.4 vs 47.6) CAD to remain widened at about USD 50 billion compared to USD 15 billion in 2016-17 Crude imports higher by USD 22 billion YoY for 2017 18 Gold imports higher by USD 6 billion YoY for 2017 18 Capital Account Strong capital account due to FII and FDI inflows FII inflows to moderate but remain at USD 10 billion Forex reserves at USD 426 billion, having increased by USD 55 billion last fiscal amid strong BoP shall remain supportive for Rupee for the long term India Balance of Payments (USD Bn) Item 2016-17 2017-18p 2018-19p Current Account Merchandise -112.44-160.88-170.00 Invisibles 97.15 114.7 120.00 Total Current Account -15.29-46.18-50.00 GDP 2275 2600 2900 CAD as % GDP -0.7% -1.8% -1.7% Capital Account FDI 35.61 34.73 40.00 FPI 7.61 22.04 10.00 Others* -6.73 16.2 13.50 Total Capital Account 36.49 72.97 63.50 Balance of Payments 21.55 26.79 13.50 Primary Balance (CAD+FDI) 20.32-9.45-10.00 *Note: Others include net commercial borrowings, short term loans, banking capital, Rupee debt service and other capitals 11
As government and RBI are seen supporting the banks in tackling the NPA issue, higher realizations in the industry sector is expected to have aided credit growth in the recent months and thereby resulting in upbeat economic growth numbers With inflation picking up to around the RBI s target levels, the revival in economic activity and improvement in credit growth had aided to the change in monetary stance from RBI to neutral from accommodative.
USDINR is likely to hold below 67.50 trade towards 65 and below in the coming 2 to 3 months. 13
OPEC crude oil production cuts (by 1.12 MBpd) till the end of 2018 aiding in market rebalance remains the major supporting factor for crude oil price sentiments. However, sharp rise in US shale oil production amid rise in crude oil prices improving the profitability of the shale oil producers is seen weighing on the sentiments. Geopolitical concerns to watch out for: escalating tensions between Saudi Arabia and Iran and possibility of US re-imposing sanctions on Iran.
ICE Brent crude oil prices are likely to find resistance around USD 78/80 and turn negative towards USD 60 levels by Oct 2018.
Seasonal recovery cycle supplemented by healthy rains during past season and improving yield from newly planted trees around 2012-13 at Indonesia Malaysia and Indonesia running zero-export duty exports EU lifts anti-dumping charges on Indonesia India maintaining higher import duty on palm oil Narrowing gap between fuel prices and PME prices world over Indonesia government strongly pushing to implement blending of bio-diesel in varied sectors Palm oil continues to stay competitive among other veg-oils despite increase in import duty last month
(All figures in MMT) PRODUCTION EXPORTS MALAYSIA Estimated Change Y-o-Y 2.04 1.30 Oct 16-Mar 17 8.73 7.72 Oct 17-Mar 18 10.29 8.72 Difference 1.56 1.00 Mar 17-Sep 17 10.13 8.57 Mar 18-Sep 18 10.61 8.87 Difference 0.48 0.30 INDONESIA Estimated Change Y-o-Y 3.29 1.73 Oct 16-Mar 17 16.89 11.97 Oct 17-Mar 18 16.59 11.36 Difference -0.3-0.61 Mar 17-Sep 17 15.96 11.31 Mar 18-Sep 18 19.55 13.65 Difference 3.59 2.34
Ratio of Mature vs. Total acreage 2015 2016 2017 Palm new planting area at origins (MHa) Malaysia Indonesia 86.1% 87.2% 87.9% 0.89 76.2% 74.1% 75.3% 0.08 0.58 0.15 0.16 0.49 0.49 0.25 0.10 0.35 0.37 0.35 0.18 0.18 Malaysia Indonesia 2012 2013 2014 2015 2016 2017(E) 2018(P) New plantation expansion was more in Indonesia during 2012 and 2013, where as mature acreages are on rise last 5 years at Malaysia. This suggests that Indonesia palm production would improve over coming years, where as Malaysia productivity will be questioned.
Palm oil production Q-o-Q (MMT) Malaysia Indonesia 9.15 8.82 7.33 5.79 4.42 4.93 Palm oil production seasonality Malaysia Indonesia OND'17 JFM'18 AMJ'18 OND JFM AMJ JAS Palm oil production at key origins is expected to rebound going by seasonal pattern of recovery through AMJ quarter. GROWTH Q-o-Q AMJ 15 AMJ 16 AMJ 17 Quarterly share of Annual production 28% 24% 21% 27% INDONESIA 27.0% 2.2% 7.3% MALAYSIA 39.5% 23.8% 17.9% JFM AMJ JAS OND
Parameters (All figs in MMT) Mar 18 Apr 18(E) May 18 June 18 Open stock 2.48 2.32 2.30 2.34 Production 1.57 1.65 1.73 1.68 Imports 0.04 0.04 0.03 0.03 Supply 4.09 4.01 4.07 4.05 Exports 1.57 1.49 1.52 1.37 Dom. consumption 0.20 0.22 0.21 0.19 Total Consumption 1.77 1.71 1.66 1.56 Ending stocks 2.32 2.30 2.41 2.49 Slower pace of exports through AMJ 18 likely to lead to Malaysian palm oil inventory rise
Parameters (All figs in MMT) Mar 18 Apr 18(E) May 18 June 18 Open stock 3.15 3.00 2.82 2.85 Production 2.65 2.76 3.04 2.98 Imports 0.00 0.00 0.00 0.00 Supply 5.80 5.76 5.86 5.83 Exports 1.94 2.03 2.15 2.11 Dom. consumption 0.86 0.90 0.86 0.76 Total Consumption 2.80 2.94 3.01 2.87 Ending stocks 3.00 2.82 2.85 2.96 Steady production through AMJ 18 leading to build up of ending stocks at Indonesia
Malaysian Palm Oil Stock Projection (MMT) 2016-17 2017-18 2.55 2.73 2.80 2.55 2.48 2.32 2.30 2.19 2.31 2.44 2.54 2.64 1.94 2.02 1.57 1.66 1.78 1.67 1.54 1.46 1.55 1.60 1.56 1.53 Indonesia Palm Oil Stock Projection (MMT) 3.83 3.64 3.55 3.67 3.48 3.42 3.17 3.38 3.15 3.02 3.15 2.92 2.94 3.07 2.95 3.00 2.80 2.62 2.60 2.58 2.66 2.74 2.70 2.54 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 1.80 1.60 1.40 1.20 1.00 0.80 1.60 1.40 1.20 1.00 0.80 Malaysia S/C Ratio 2016-17 2017-18 Last 3 years avg. Indonesia S/C Ratio Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Ramadan demand caused ending stocks shrink through Feb-May 2018. Stocks expected to rise through Q3-Q4 2018. Stocks-to-consumption ratio is healthier than last year at Malaysia.
Thousands Thousands EU imports of FAME from Indonesia shrunk since implementation of anti-dumping duty in 2012-13. However, that is compensated by higher FAME imports from Malaysia, higher CPO and palm oil products imports from Indonesia and Malaysia. Palm oil products imports by EU from Indonesia are on rise last 2 years. 3500 3000 2500 2000 1500 1125 387 331 EU Imports from Indonesia 217 1821 2 270 1310 12 241 1756 31 231 1011 1000 1797 1306 1416 1505 500 880 482 0 68 2012 2013 2014 2015 2016 2017 A B C D 25 321 817 1800 1600 1400 1200 1000 800 600 400 26 A B C D 211 237 222 891 941 Palm oil products for industrial use other than food stuff CPO for industrial use other than foodstuff Refined palm products for manufacture of fatty acids Fatty acid mono-alkyl esters (FAME) EU Imports from Malaysia 340 231 950 1028 200 0 12 6 45 32 66 109 2012 2013 2014 2015 2016 2017 351 269 270 387 269 757 A B C D Indonesia palm re-routed through Malaysia? 309 579
in Million tonnes 8 7 6 5 4 3 2 44% 40% 36% 32% EU Total palm oil and products imports from Indonesia and Malaysia 4.11 Indonesia Malaysia Imports from Duo 2.41 6.52 7.30 7.33 4.56 4.53 2.74 2.80 4.14 3.00 7.14 3.87 6.41 4.67 2.54 2.45 2012 2013 2014 2015 2016 2017 42% 37% 38% 38% 40% Malaysia share of EU imports from the duo 34% 7.12 EU has been able to supplement its FAME requirement by processing more imported palm oil than directly importing FAME. FAME producing refineries at EU are decreasing over years, but capacity utilization has been improving well, which suggests EU will maintain its appetite for imported palm oil. Over last 2 years, EU has been importing more palm oil from Indonesia than from Malaysia. 270 250 230 210 190 170 150 FAME Production Capacity Utilization 263 43.8% Number of FAME refineries FAME production capacity utilization 60.1% 56.1% 58.1% 54.6% 244 44.5% 218 205 202 201 2012 2013 2014 2015 2016 2017 62.0% 57.0% 52.0% 47.0% 42.0%
250 Biodiesel Margins in USD/T Singapore Diesel vs CPO FOB Indonesia (-6) PME Margin SE Asia (-72.4) PME Margin @ Rotterdam, NW Europe (-91.2) RME Germany (+218) 218 1200 Biodiesel Prices in USD/T CPO FOB Indonesia PME SE Asia PME Rotterdam, NW Europe RME Germany 150 1100 50-50 -6-72.4 1000 900 985.6-150 -91.2 800-250 700 743.7 710.8-350 600 636 Margins driven mainly by global surge in energy prices last 4-5 months PME prices have been confined to same range last 7-8 months, while RME prices have declined 6% Nov-Mar
-40.0 Local to Landed price disparity among major veg-oils Widest for CPO Narrowest for RBD Olien SFO maintains parity 40.0 0.0 Spread (Spot - Landed Cost) INR/10Kg Soy oil CPO RBD Sun Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18-80.0 +4.3-5.1-5.8-33.2 Soyoil remains costliest among the 3 major imported oils Inter-market Landed Cost Spreads (INR/10kg) Sun-Soy Soy-CPO Sun-CPO 200.00 100.00 0.00 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 67.23 40.45-22.28 All figures in INR/10kg 28-Feb 18 29-Mar 18 23-Apr 18 CPO vs. CSBO Landed Cost spread Local vs. Imported CPO Spread -120-62 -68-15 -35-35 Local CPO Ref. Margin 5 9 8 Local vs. Imported RBD Olien Spread RBD Olien vs. Ref. Soyoil @Kandla -1.7-8.4-13.7-85 -35-33 CPO imports are currently INR60-70/10kg cheaper than CSBO imports. Cost of refining imported CPO and the spread between local-to-imported Olien is decently less than spread between Olien and refined Soyoil. Above price dynamics continue to encourage more palm oil imports. -100.00
Parameter (Oct-Sep year) 2016/17 2017/18 (P) Beginning Stocks 1.55 2.02 Production 18.86 20.75 MY Imports 0.63 0.60 Total Supply 21.04 23.38 MY Exports 16.29 17.59 Industrial Dom. Cons. 1.56 1.79 Food Use Dom. Cons. 0.90 0.95 Feed Waste Dom. Cons. 0.27 0.25 Total Dom. Cons. 2.73 2.99 Ending Stocks 2.02 2.80 S/C Ratio 10.62% 13.60% All Units in MMT Malaysia annual palm oil stocks look bulky due to high production recovery Y-o-Y
Parameter (Oct-Sep year) 2016/17 2017/18 (P) Beginning Stock 2.54 2.80 Production 32.85 36.03 Imports 0.00 0.00 Total Supply 35.39 38.83 Exports 23.29 25.01 Industrial Dom. Cons. 3.27 3.59 Food Use Dom. Cons. 5.67 6.00 Feed Waste Dom. Cons. 0.36 0.38 Total Dom. Cons. 9.30 9.97 Ending Stocks 2.80 3.85 S/C Ratio 8.59% 11.01% All Units in MMT Accelerated production for 2017-18MY would augment palm oil stocks by 1.05 MMT to 3.85 MMT.
Parameter (Oct-Sep year) 2016/17 2017/18 (P) Beginning Stocks 7.45 7.73 Production 60.81 66.66 MY Imports 43.97 46.11 Total Supply 112.23 120.50 MY Exports 44.81 47.98 Industrial Dom. Cons. 15.83 16.95 Food Use Dom. Cons. 42.77 44.42 Feed Waste Dom. Cons. 1.09 1.13 Total Dom. Cons. 59.69 62.50 Ending Stocks 7.73 10.02 S/C Ratio 7.40% 9.07% All units in MMT Higher palm oil production at SEA for 2017/18 MY would swell global palm oil stocks to 10.02 MMT
Potential disruption of soybean trade to shift demand from US to SA. Argentina production hampered by dry-weather. Brazil bumper crop partly manages to compensate Argentina loss. Tight supplies of soyoil at major origins world across Lower Global S/C ratio Y-o-Y Healthy Soymeal stocks Y-o-Y across major destination and major origins Current soy/corn ratio is not encouraging acreage shift between either.
At beginning of season, Chinese officials forecast China imports for 2017-18 (Oct-Sep) at 95.97 MMT vs.. 94.5 MMT LY Crushing for 2017-18 projected 94.4 MMT Almost 38 MMT of soybeans (40% of estimated imports for 2017-18) already imported by China till Feb 18. Estimated exports to China for 2017-18 Brazil : 51-52 MMT 11.9 MMT already exported in Oct-Feb Argentina : 6-7 MMT - 2.17 MMT already exported in Oct-Feb USA : 33-34 MMT; 21.34 already exported in Oct to Feb CHINA SOYBEAN LANDED COST US BRAZIL ARGENTINA $456/T $453/T $455/T Another 12 to 13 MMT soybeans to come from US to China Estimated around 2 MMT per month imports from US ahead
SOYBEANS ARGENTINA BRAZIL All figures in MMT 2016-17 2017-18 2016-17 2017-18 Area Harvested (Mha) 18.35 17.15 33.90 35.00 Beginning Stocks 31.70 36.13 18.31 25.21 Production 57.80 38.50 114.00 115.00 MY Imports 1.68 6.50 0.30 0.25 Total Supply 91.18 81.13 132.61 140.46 MY Exports 7.00 7.20 62.50 71.50 Crush 43.50 42.50 41.30 45.43 Food & Feed Dom. Cons. 4.55 4.78 3.60 3.75 Total Dom. Cons. 48.05 47.28 44.90 49.18 Ending Stocks 36.13 26.85 25.21 19.78 South America soybeans production pegged 14.6% down Y-o-Y @115.8 MMT Argentina production pegged lower by around 33% Y-o-Y, at 38.5 MMT. Argentina crush projected only 1 MMT behind last year. Higher beginning stocks keep Argentina stocks healthy, projected @ 26.85 MMT. Brazil production pegged 1MMT above last year, helped by better yields and good weather conditions. Exports are projected to hit record mainly heading to China. Brazil ending stocks projected down 21.5% Y-o-Y on account of higher exports.
Country wise Soyoil end stocks(mmt) Global Soyoil S/C Ratio vs.. CME Soyoil price 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.27 0.25 0.75 0.23 0.18 48 43 38 33 47.61 13% S/C Ratio 38.30 5% MY Avg. Yearly price (USc/lbs) 15% 11% 11% 9% 33.62 33.14 31.30 31.31 16% 14% 12% 10% 8% 6% 4% 0.1 2% 0.0 Argentina Brazil US India EU 28 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 0%
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Soymeal stocks at Origins (MMT) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 4.30 2.81 0.36 Argentina Brazil US Soymeal stocks at Destination (MMT) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 0.70 0.60 0.50 0.40 0.31 0.30 0.24 0.23 0.27 0.20 0.10 0.00 EU Vietnam Indonesia Philippines
US soybean Acreage (Million Acres) Prospective planting Planted Acreage in June Final Planted Final Harvested 89.48 88.73 90.1 89.5 88.98 89.94 88.54 88.58 84.64 85.14 82.7 81.7 82.24 83.69 83.4 82.7 2.7 2.5 2.3 2.1 2015 2016 2017 2018 (P) US soy/corn ratio 2015/16 2016/17 2017/18 2.31 USDA reported soybean prospective planting at 88.98 million acres vs. 89.48 million last year. Typically, soybean planted acreage in Juneend and final planted acreage deviate 2%-5% from prospective planting survey figure. 1.9 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Current soy/corn ratio is not much encouraging to shift acreage.
All figures in MMT 2017-18 2018-19 Y-o-Y Change Area Harvested 36.23 35.86-1% Beginning Stocks 8.24 15.14 84% Production 119.52 118.00-1% MY Imports 0.68 0.62-9% Total Supply 128.44 133.76 4% MY Exports 55.50 57.17 3% Crush 53.82 55.97 4% Food & Feed Use 3.97 4.13 4% Total Domestic Consumption 57.79 60.10 4% Ending Stocks 15.14 16.49 9% Lower production, higher crush & exports Y-o-Y to be compensated by higher carry-over.
BMD CPO 3M Futures prices are proceeding in minor wave-(5) as the last leg of Intermediate wave - [C]. The wave-[c] is likely to terminate in the vicinity of MYR 2250/2200 in the coming 1-2 months as an Ending Diagonal structure. Subsequently prices would turn positive and recover towards MYR 2500 and higher in the medium to long term
RBD Palm Olein FOB 1M prices are likely retreat lower towards USD 610 in the coming 2 to 3 months, where a significant bottom is likely to be placed. Subsequently, prices are likely to recovery as an impulse structure in Intermediate wave-c whereby a rally towards USD 700 by Sep/Oct 18 is likely.
CME Soybean Futures prices are likely to hold above USc 1020 on further weakness and turn higher towards USc 1150 in the coming 3 to 4 months ahead of turning weak towards USc 1020 in the subsequent months. CME Soybean Meal futures prices are likely to hold above USD 365 on further weakness and turn higher towards USD 410 in the coming 3 to 4 months ahead of turning weak towards USD 350 in the subsequent months.
CME Soy oil 1M futures prices are in intermediate wave-[c] within Primary wave-b down. Prices are likely to extend its weakness towards USc 30.50 in the coming 1-2 months ahead of turning higher towards 33.50 cents and higher by end of Aug 18. Argentina Soy oil 1M forward prices are likely to stay below USD 775 and trade weak towards USD 710 in the coming 1-2 months, where a long-term bottom is likely to place and bounce higher as impulse structure Primary-C wave.
Ukraine Sunflower Oil 1M FOB prices are likely trade mixed and then extend its up-move towards USD 800 in the coming 1-2 months ahead of retreating lower towards USD 760/750 in subsequent 3-4 months.
CPKO prices are likely to hold below USD 1100 on further pullback and trade weak towards USD 800 ahead of any significant recovery in coming 3 to 4 months. Prices breaching above USD 1100 shall negate the immediate downside potential and turn the sentiments mixed.
Coconut Oil prices are likely to hold above USD 1030 and gradually recover towards USD 1300 ahead of turning weak in the coming 3 to 4 months. An early fall below USD 1030 will push the prices further lower towards USD 900.
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