Synopsis of Globoil 2015

Global scenario:

1. Oilseeds

Rapeseed premiums over soy seed is expected to widen due to lower production. Thus leading to demand rationing.

2. Veg Oil

 Global veg oil supplies are expected to grow by 4.8 ml tons to 236 ml tons in 2015/16.

 Rape oil supply will be lower and sun oil supplies will remain flat.

 Rape and sun oil will develop higher premiums over soy oil and lead to higher soy oil demand.

 S/C ratio is expected to be at 12.9% which is lowest in 5 years.

 Prices will remain supported.

3. Meal

 Global meal supplies are expected be higher nearly 11 ml tons.

 Lower supplies of other oil meals will be compensated by higher soy meal supplies.

 S/C ratio is expected to be at 3.28% slightly lower than 2014/15 but still highest in three years.

 Prices might come under pressure.

4. Soy complex scenarios

Soy bean:

 Global Bean production is marginally lower Y/y but due to record carry forward stocks, the total availability is very high.

 The stock to use ratio is second highest in last 45 years.

 Brazil has been gaining the market share from US due to near 60% depreciation of Real in last one year.

 Chinese demand could be impacted due to economic slowdown in the country. Besides, negative crush margins will also have negative impact.

Soy oil:

 2015/16 will be a year of record Soy oil production, due to all time high crushing in China, Argentina and

USA.

 Despite higher consumption stock to use ratio will be at record.

 Soy oil could potentially take away market share from the high prices Rape and Sun.

Soy meal:

 Soy meal could see a glut like scenario.

 Nations like Iran, Pakistan and others have moved to importing bean instead of meal to utilize domestic

crush capabilities.

 Argentina is the biggest Meal producer and exporter. Unlike other exporters Argentina has miniscule

domestic consumption and exports 85% of its total meal production. With nations switching to bean

imports it will be difficult to absorb all this meal in global market.

 China demand as discussed above is slowing down.

 Soy meal scenario is extremely bearish.

5. Palm oil scenarios

 Threat of El Niño has triggered the recent rally but the Conesus was that it is overdone.

 Conference was divided on the production estimates of Palm oil. While some said the production could

be down Y/y, Mr. Dorab Mistry insisted that the production will be higher Y/y, if at all the extent of

production increase could get capped due to the extended El Niño in O-N-D

 Correction in Fertilizer prices was muted, compared to the one in Palm oil prices, and as a result the

producers have reduced the use fertilizer which will also lead to lower production.

6.Biodiesel scenarios

 Discretionary blending demand for Biodiesel has remained almost nill in 2015 due to weak crude oil

prices.

 Moving forward as per oil world, world biodiesel production for 2015 will be around 29 ml tons lower by

1.5 ml tons vis-à-vis 2014.

 Argentina and Indonesia the world’s major biodiesel exporter will see lower production this year due to

subdued export demand.

 However, speakers are of the opinion that, the levy collected by Indonesia on palm oil exports, if used

properly for subsidizing local biodiesel consumption, we might see a big jump in palm oil domestic

consumption by Indonesia.

 However, all are skeptical about Indonesian biodiesel story as the previous ambitious plans did not take

off.

7. International Price view:

 Soy oil prices to rise to $670 per ton by end Dec 2015 while, in the March-April to trade at around $700

per ton on FOB basis

 CBOT soy bean and meal will see further downside from the current level. While soy oil will trade in the

range of 26 to 28 cents. If EPA of US comes in higher biodiesel mandate prices might go up to 32 cents.

 RBD palm oil prices to trade in the range of $610-$620 per ton in Dec qtr and in March-April qtr prices to

trade $650-$670/T.

Indian scenario

2015/16 soy bean production number is debated and the broad consensus among the speakers is the number could be in the range of 80 to 85 lakh tons. The end stock number of 2014/15 is also debated and nearly 10 lakh tons emerged as the acceptable number.

Indian edible oil imports will see another record number in 2015/16 also to the tune of 15.1 ml tons higher by 1 ml tons over 2014/15. Among the oils, soy oil imports could be as high as 3.5 ml tons against 3 ml tons of 2014/15. Palm oil imports will hover in the rage of 9.5 to 10 ml tons, while, sun oil imports will stagnate or slightly below than 2014/15’s level of 1.5 ml tons.

1. Observations by domestic industry leaders

 Crushing capacity utilization is just 30%

 Meal demand could be impacted due to proposed imports of Chicken legs from USA.

 Port based crush plants could come up as the government may be forced to look at the imports of oilseeds. Canola plants could come up on West coast while the Sunflower and Soy plants will find favour in South due to the consumption

 Ground nut will emerge more as a consumption crop then an oilseed crop as it prices itself out. Same fate will be seen for Mustard due to very high premiums

 Blended oil will become official.

 Mustard and pulses will compete closely for Rabi acreage

2.Domestic Price view

Soy bean: Various industry players viz., Ruchi, Adani, Gujarat Ambuja, Emami etc came out with their price outlook for Indian soy bean. Soy bean price range for the coming six months would be INR 3000 to 3500/Qtl.

All of the participants divulged that there is no consistency in the palm refining margins. But soft oil margins are good and vary in the range of $10 to 30 per ton.

Agri Value Chain

 Farm loans with banks are of 9 lakh crore. Of this 30,000 crore is for post harvest while the rest is pre-harvest in nature

 30,000 crore is commodity warehouse receipt based finance and has huge potential to grow.

Dorab’s views in a nutshell

 In spite of recent dry weather, still positive about the global palm oil production in 2016 which will be higher by 2.5 ml tons y/y because of scanty but timely rains.

 Despite lower supplies, upside in Palm oil prices could capped due to demand erosion because of cheap soy oil and crude oil

 Rape and sun oil will continue develop higher premiums over soy oil and loose some of the demand.

 Even if duties were to rise further (facilitated by lower inflation) it will not impact the quantum of imports

 Bullish on China and India.

 China probably liquidated small quantity from the mammoth stocks 6 ml tons of rape seed oil. The quality of reserved has eroded. More selling will put pressure on prices

 Indonesian biodiesel mandate has proven to be unreliable

 In 2015/16 global veg oil is evenly balanced. Even a smallest supply disruption could lead to sharp increase in prices

 In the near future BMD palm oil prices might not fall below MYR 2000/Ton due to persistent weakness in MYR.

 Price range for the coming 6 months is MYR 2100 to 2300/Ton. If the MYR crosses 4.5, upper range could be extended to MYR 2400/Ton but may not sustain there.

 “Soy oil is the Must Own oil of 2016”.