Global and Indian Vegoil Market

Dynamics and Price Outlook

G. Chandrashekhar
Economist, Senior Editor,
Policy Commentator
BMD – POC 2019
March 4-6. Kuala Lumpur

Global Economic Scenario

• VUCA continues . . . . .
• 2018 was full of uncertainties / risks – Crude
oil, Fed rate hike, USD rise, Sanctions, Protectionism, Trade
friction, Tariffs & counter-tariffs .
• 2019 will be no different: Headwinds
Geopolitical tensions, Divergent monetary
policies, USD; Crude oil; Event risk, Weather risk,
Global growth concerns
 Outlook for 2019
• Risks to global growth and global markets
are real; EU and Japan tepid; China slowing;
USA risks slowdown in H2 as +ve effects of
stimulus fade;
• World Bank report ‘Darkening Skies’ Biz
confidence fading; Loss of appetite to invest;

Global Policy Context

• Becoming increasingly complex; Countries /
governments face dilemma;
• How to reconcile domestic socio-economic and
political compulsions with international
obligations?
• Often, domestic compulsions override; Global
vegoil market stakeholders will be buffeted by
VUCA and cross-currents
 Watch critical 3 ‘C’s:
Crude, Currency, Crops
• Crude: Many challenges on supply side and
demand side; US shale output set to expand;
Output cut by OPEC+ will help rebalance market
in H2; Iran oil export will suffer if US does not
extend exemption;

Watch critical 3 ‘C’s:

Crude, Currency, Crops
• Crude: Global growth losing momentum;
US + China = 1/3rd of global demand;
Demand risks will escalate if trade conflict
worsens; next OPEC meeting mid-April;
• Currency: USD set to weaken in H2 with Fed rate
hike pause; Will help EM currencies recover
 Global Vegoil Supplies
• Output to expand by 6 ml t in 2019;
Palm 3 + Soy 2 + Sun 1 (mln tons)
• Palm: maturing trees drive output higher
Indonesia 42.0 ml t (40.0 ml t)
Malaysia 20.5 ml t (19.5 ml t)
Others 10.5 ml t (10.3 ml t)

World Vegoil Supply

• Soy oil has grown steadily (2 ml t pa)
• Sun oil’s stellar growth to 19.5 ml t (from 15.0
ml t 4 years ago);
• Rape oil has got trapped in 27-28 ml t range
• But 2019 will be a Demand side story for world
vegoil market
 World Vegoil Demand
• Steady food demand: to expand 3 ml t How
much will fuel demand expand? Palm bulls place
much hope on mandate driven biodiesel demand;
Fuel demand will expand by ~2 ml t (max 3 ml t)
• Additional output and additional demand (food +
fuel) will either be balanced or leave a small
surplus;

Summary: 2019 additional output

and demand (ml t)
Output:
Palm 3 + Soy 2 + Sun 1 = Total 6
Demand:
Food 3 + Fuel 2/3 = Total 5/6
Surplus = 1/0
BioD usage targets always ambitious,
but achievement elusive; Targets usually
intended to boost market / confidence
 Palm facing challenges
• Palm under concerted attack mainly
from industrialized countries; It has
potential to transform into a crisis for
palm market; Attractive prices and
communication can repel attacks due
market pressure;

India: Vegoil Market Fundamentals (ml t)

Domestic 2018-19 2017-18
Gn/Soy/Rape 4.8 4.6
Others 3.2 3.1
Total dom. Oil 8.0 7.7
Imported:
- Palm 9.2 8.7
- Soy 3.0 3.0
- Sun 2.5 2.5
- Others 0.3 0.3
Total imports 15.0 14.5
 Indian Policy Context
• Panic in government over low farm-gate
prices; After pulses, oilseeds and edible oil
under policymaker’s scanner; Expect
policies to boost farm-gate prices; Customs
duty hike may not be the only option;
Futility of high duties now recognized;

What should Malaysia do?

• Stop treating India as merely a large
market for supply of palm oil in bulk; By
nature, markets are fickle; So, strike
partnership for a sustained, trust-based,
two-way relationship; Go beyond
commodity palm oil !!
 Five critical drivers of commodity market
every trader must track
• Economic growth
• Geopolitics
• Monetary policy
• Currency
• Weather

Price Outlook - Backdrop

• Brent crude to weaken from $ 65 to $ 60 to $ 55 next
2-3 quarters
• USD will stabilize at current levels (Euro: 1.135) over
next two months and weaken in H2;
• Indian Rupee will strengthen from 71 to 67-69 as USD
weakens;
• El Nino currently in ‘Watch’ category; could be mild
in impact;
• Trade friction; China stimulus package??
• Composition of Indian government in H2
 Price Outlook
• Upside potential for palm in short-run, but
rather limited;
• Expect CPO AMJ to avg RM 2300/t due
seasonal factors
• Expect CPO H2 to avg RM 2250/t
• Soy-Palm differential to narrow
• Sun oil will out-price itself if no correction

Laurics
• Coconut oil output at new high; CNO ending stocks at
multi-year high;
• Palm Kernel Oil output rising; PKO stocks also rising;
• CNO and PKO usually move in tandem; Similar fatty
acid profile; Interchangeable;
• PKO demand in food set to grow (chocolate in EM)
• CPKO impacted by CPO; but CNO has niche character;
• Laurics to move in tandem with CPO generally
• CNO average USD 750
• CPKO average USD 650
 Gratuitous guidance
• Recognize huge uncertainties
• Do not expect anything dramatic
• Exercise caution in taking far
forward position
====
• Stay blessed !!

Disclaimer. Thank You

G. Chandrashekhar
Economist, Senior Editor, Policy Commentator
Economic Advisor, IMC Chamber of Commerce
Mumbai 40020. India
Phone: +91 9821147594
Email: gchandrashekhar@gmail.com