Recent Developments in Veg Oils Outlook

1. Recent Developments in Veg Oils Outlook By Dorab E Mistry Godrej International Limited

2. Congrats – SEA & Tefla's Northern India is a major centre for our industry As our capital city New Delhi deserves a Globoil conference of its own This conference is most timely considering expected forthcoming events in India

3. IPOB–SEA-SOLIDARIDAD Historic MOU signed on 16 July 2018 in Jakarta between Indonesian Palm Oil Board, Solvent Extractors Association of India and SOLIDARIDAD to promote ISPO Now all Palm Oil stakeholders in India must rally to this call for sustainability.

4. Fundamentals First Palm oil production has PEAKED Prices have bottomed There is a glut of soybeans in the world Meal demand is soft World Rapeseed production is lower Sunseed production could surprise on the upside

5. Other man-made factors Indian Import duties Betrayal of Bio Fuels by Trump Admin Excellent pro-active bio fuel measures by Indonesia and Brazil Recovery in crude oil prices Possibility of re-introduction of export taxes in Malaysia and Indonesia

6. Macro Factors USA – China Trade War continues World Growth will be softer China economy seems to be slowing USA economy is slowing Elections in Indiaand Indonesia World has not had a weather problem for a very long time

7. Other Macro Factors Outlook for U S Dollar World Interest rates Outcome of the USA-China Trade Spat International Trade involves dealing with National Pride and Feelings Brexit Russo-Saudi alliance on Crude oil prices

8. Trade Wars U S farmers have lost Billions of Dollars of Soybean sales as a result of the Trade War with China China is encouraging soybean imports from Brazil, Argentina, Canada, Ukraine and many other countries U S farmers may NEVER regain their old market share

9. Indian Import Duties SEA Proposal to lower the import duty on CPO from 40 to 35% is win win Refining and packing industry is an Important Industry in Every country India must equalise the import duty on RBD Oleinbetween Malaysia and Indonesia

10. Palm Prospects In 2018 Malaysia Palm production was 19.5 mln mt. and Indonesia produced 42 mln mt For 2019, I repeat my forecast of Malaysian production at 19 to 19.5 mln mt & Indonesian production at 44 mln mt World Palm oil production will only rise 2 to 2,5 mln mt against 5 mln mt last year

11. Palm Production Prospects I must repeat my reasons for pessimism Low prices began to bite from August onwards. Small holders in Indonesia, particularly in Kalimantan were in distress We must expect that fertiliser application has suffered since August 2018 and from October it has suffered more

12. Palm Prospects 2019 From about July – August 2018, in Malaysia we had a High Cycle for Palm production. This High Cycle will come to an end around Feb-March 2019. After that the trees will require a period of rest Therefore one cannot be too optimistic about Second Half 2019 production

13. Bio Diesel Mandates How effectively is Indonesia implementing its B20 Mandate Is Indonesia expanding bio diesel usage in other industries like power generation How effectively is Malaysia implementing B10 and when will it go from B10 to B20 When will Export Taxes kick in ?

14. Other Vegetable Oils The resilience of Sunseed crops in Russia and Ukraine has surprised me Sun oil has expanded its market by competing with soya oil on price Are we going to have a Fifth year of massive Sunseed crops ?

15. Rapeseed Rapeseed oil is losing market share due to its premium over soya oil Europe, Canada and Australia are not able to increase Rapeseed production Rape oil usage in bio diesel in Europe will depend on how much palm oil is allowed to be used for bio diesel

16. CHINA 2019 soybean crush in China is likely to comfortably exceed the 2018 crush China USA Trade Spat unlikely to affect soybean imports in 2019 because China has found new sources After February 2019, will China import some palm bio diesel

17. Soybeans & Soya oil EU deal on Argentine SME can be a game changer for soya oil. It will depend on the level at which Minimum Export Price for Argentine SME is fixed If exports of SME from Argentina are curbed, soya oil will drop in price Post February soybean prices must come under pressure

18. Currencies Has the US Dollar peaked and is it south-bound? A docile FED points to a gradually weakening USD EM currencies should stabilise but may not strengthen if energy prices rise

19. Indian Imports 000 12-13 17-18 18-19 Soya 1,090 3,050 2,950 Palm 8,240 9,200 10,000 Sun 980 2,525 2,550 Others Total 10,670 15,026 15,700

20. INDIA No clear signals on 2019 Monsoon Indian crop yields slowly improving. Indian Government will protect farmers General Elections in 2019 may create some turbulence Indian imports 2018-19 will be higher by 700,000 mt. Main increase will be Palm

21. INDIA Indian Oilseed farmers are doing better than other farmers except those growing cereals like Rice, Wheat & Sugarcane Oilseed farmers earn close to MSP It is possible that soybean plantings will expand in 2019 SEA MUST establish Model Mustard Farms

22. Potential EL Nino Will a new EL Nino develop from here onwards ? If it is of moderate intensity, it will affect Palm production in 2020 El Nino may have only a psychological impact on prices in 2019

23. Brief look at Meal & Corn Crush margins all over the world were excellent but now deteriorated Meal prices are cheap mainly because of big production of oilseeds Price outlook for Corn in 2019 is much better than in 2018 Corn Ethanol has a big future

24. World Energy Demand World Energy Demand grew in 2017-18 by more than 3 mln mt as a result of increases in Indonesia and Brazil Energy Demand in 2018-19 will be interesting due to much higher mandate in Indonesia. Will Indonesia consume 7.5 mln mt for bio diesel in 2019 ?

25. World Food Demand World Food Demand for veg oils grows at a steady 3 mlnmt annually 2017-18 and 2018-19 Food Demand also expected to grow 3 mlnmt per year

26. World Veg oil Incremental Supply 000 tonnes 17-18 18-19 Soya oil + 2,000 + 1,000 Rape oil + 500 + 500 Palm oil + 5,000 + 3,000 Others + 500 + 1,000 Total Supply + 8,000 + 5,500 Total Demand + 6,000 + 7,000

27. Assumptions for Medium Term Price Outlook Brent crude USD 70 to 90 per barrel Only ONE more rate hike in 2019 by FED World GDP growth in 2019 lower than in 2018 Some political turmoil in USA U S Dollar will be gradually weaken

28. Palm Price Outlook We have bottomed out At current Ringgit levels, BMD futures on 3rd month can rise to 2400 by March end The market is hoping to see combined Malaysian & Indonesian stocks decline to about 6 million tonnes by April-May 2019 From March, prices may be Inverted

29. Price Outlook Palm Production as measured in yields may only bottom in April and recovery will be slower than usual Soya oil prices FOB Argentina MJJ have risen very fast to almost USD 655 FOB. Further progress will depend on outlook for SME exports

30. Bio Diesel Demand Price Outlook of ALL Veg oils will depend on ONE MAJOR factor in 2019 Consumption of Bio Diesel We are now a hostage to Bio Diesel Usage World must consume 44 mln mt of Bio Diesel in 2019 – a slippage of 1 or 2 mln tonnes can change the Price Outlook

31. Lauric Oils Outlook Coconut Oil supply is better in 2019 CPKO production is higher and non-edible demand is growing only at a steady pace Stocks of CPKO and CNO are rising Prices of CPKO and CNO were the first to recover. The premium for forward months should erode

32. Conclusion Prices are recovering gradually Beware an emerging EL Nino Veg oils are cheap so consumption will expand Bio Diesel Usage is CRITICAL GOOD LUCK & GOD BLESS