22  September  2015  

IVY  NG,  CFA    Regional  Head  of  PlantaAons  ivy.ng@cimb.com  603-­‐22619073  

Planta&ons  Sector  The Impact of El Nino on Global Vegetable Oil and Palm Oil Trade

2

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Contents  SecAon1  Background  on  El  Nino  

SecAon2    El  Nino  and  rainfall  

SecAon3  PotenAal  impact  of  El  Nino  on  global  vegetable  oils  trades  

SecAon4  Historical  impact  of  El  Nino  on  CPO  output  

SecAon5  Historical  impact  of  El  Nino  on  India’s  imports  of  edible  oils  

SecAon6    Historical  impact  of  El  Nino  on  soybean  output  

SecAon7  Historical  impact  of  El  Nino  on  CPO  price    

SecAon8    CPO  price  outlook  

 

 

 

   

4  

Facts  on  El  Nino    What   and   Why?   Refers to the large-scale ocean-atmosphere climate phenomenon linked to a periodic warming in sea-surface temperatures across the central and east-central equatorial Pacific. It is a naturally occurring phenomena that result from interactions between the ocean surface and the atmosphere over the tropical Pacific.

How  o=en?  El Nino episodes typically occur every 3-5 years. However, in the historical record this interval has varied from 2 to 7 years.

How   long?   El Nino typically lasts 9-12 months, and tends to develop during March-June, reach peak intensity during December-April, and then weaken during May-July. However, prolonged El Nino episodes have lasted 2 years and even as long as 3-4 years.

Why   is   this   event   strongest   in   Dec-­‐Apr?   El Nino is typically strongest during December-April because the equatorial Pacific sea-surface temperatures are normally warmest at this time of the year

When  was  the  last  El  Nino?  The last El Nino was in 2009/10 and it was a moderate El Nino event

Caveat:  Not every El Niño event leads to the same climate conditions

 

 

 

 

5  

Monitoring  El  Nino      In the ocean, ENSO is most commonly monitored through observed sea surface temperatures within a box region of the central and eastern tropical Pacific known as NINO3.4. El Niño is a function of the strength of departures from average in NINO3.4 and the Oceanic Nino Index (ONI) is the principal measure for this. North America’s operational definitions for El Niño is when the equatorial Pacific Ocean characterized by a five consecutive 3-month running mean of sea surface temperature (SST) anomalies in the Niño 3.4 region that is above the threshold of +0.5°C. (or ONI greater than or equal to +0.5°C) In the atmosphere, El Nino is monitored via the Southern Oscillation Index (SOI), a measure of atmospheric circulation that takes the difference of atmospheric pressure between Darwin and Tahiti. Sustained negative values of the SOI below −8 often indicate El Nino episodes.

 

 

 

 

6  

CPC  issued  El  Nino  Advisory  on    5  March  2015      

Historical  Oceanic  Nino  Index  (ONI)  

Source: NOAA

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

SST

Ano

mal

ies

(°C

)

Strong  El  Nino  

La  Nina    

Moderate  El  Nino  

Weak  El  Nino  

•  The Oceanic Niño Index (ONI) has become the de facto standard that NOAA uses to identify El Niño (warm) and La Niña (cool) events in the tropical Pacific

•  Events are defined as five consecutive overlapping three month periods at or above the +0.5°C anomaly for warm (El Niño) events

•  The threshold is further broken down into Weak (with a 0.5 to 0.9 SST anomaly), Moderate (1.0 to 1.4) and Strong (≥ 1.5) events

 

 

 

 

7  

BOM  upgraded  ENSO  tracker  to  El  Nino  on  12  May  2015      

 

•  The ENSO (El Nino Southern Oscillation) tracker was upgraded to EL NIÑO status on 12 May 2015.

•  This followed El Niño thresholds being exceeded in the tropical Pacific oceanic and atmospheric data, and consensus among climate models monitored by the Bureau that the event would be sustained.

 

   

 

Historical  SOI  trends  

Source: BOM

-­‐40  

-­‐30  

-­‐20  

-­‐10  

0  

10  

20  

30  

1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015  

8  

Consensus  forecasts  on  El  Nino  probability  

Consensus  Probabilis&c  ENSO  forecasts    

Source: IRI Source: IRI

Season   La  Niña   Neutral   El  Niño  

ASO  2015   ~0%   ~0%   100%  

SON  2015   ~0%   1%   99%  

OND  2015   ~0%   1%   99%  

NDJ  2015   ~0%   2%   98%  

DJF  2015   ~0%   3%   97%  

JFM  2016   1%   5%   94%  

FMA  2016   1%   12%   87%  

MAM  2016   2%   23%   75%  

AMJ  2016   5%   40%   55%  

•  The current El Nino could last till 1Q 2016. •  CPC revealed that the two biggest El Niños on record were in 1982-83 and 1997-98. •  This year's episode is slightly stronger, in terms of sea-surface temperatures, than the

1982-83 El Niño was at this point in its development, but it's weaker than the 1997-98 episode was at the same point.

Consensus  Probabilis&c  ENSO  forecasts  

9  

El  Nino  and  rainfall        

 

•  El Nino conditions in the tropical Pacific are known to shift rainfall patterns globally. •  The most reliable effects of El Niño are deficient rainfall over Indonesia and northern South America, •  and excess rainfall in southeastern South America, eastern equatorial Africa, and the southern US.

Source: International Research Institute for Climate and Society (IRI)

10  

Global  soybean  and  oilseeds  produc&on  map  

Source: CIMB/FAS

11  

El  Nino  and  global  vegetable  oils  trade  •  Palm oil supply may be impacted by the lower rainfall or drought in Indonesia, Thailand and

Malaysia. The lower rainfall will result in weaker palm oil yields and output on a lagged basis. •  India typically receives lower rainfall from its monsoon during El Nino which could hurt its oilseeds

production. This could help boost its demand for imported edible oils. •  Some soybean planting areas may be impacted by the El Nino conditions as well.

     

World  major  producers  of  palm  oil  in  2014     World  major  importers  of  palm  oil  in  2014    

Indonesia  52%  

Malaysia  33%  

Thailand  3%  

Colombia  2%  

Nigeria  2%  

PNG  1%  

Others  7%  

India  18%  

China  13%  

EU    17%  

USA    3%  

Pakistan  5%  

Others  44%  

Source: CIMB/MPOB

12  

El  Nino  and  Malaysia  CPO  produc&on  

Historical impact of El Nino on Malaysia’s palm oil yield and production

Source: CIMB/MPOB

Type   Period   Intensity   Chge  in  FFB  yield   Chge  in  CPO  yield    CPO  output  growth  El  Nino   May  82-­‐Jun  83   Strong   -­‐10.5%   -­‐10.4%   -­‐14.1%  El  Nino   Aug  86-­‐Feb  88   Moderate   -­‐22.8%   -­‐23.1%   -­‐0.2%  El  Nino   May  91-­‐  Jun92   Moderate   -­‐0.1%   -­‐1.4%   3.8%  El  Nino   Sep  94-­‐May  95   Moderate   2.8%   2.0%   8.2%  El  Nino   May  97  -­‐  Apr  98   Strong   -­‐16.3%   -­‐16.8%   -­‐8.3%  El  Nino   May  02-­‐Feb  03   Moderate   5.7%   4.5%   12.1%  El  Nino   Jul  04-­‐Jan  05   Weak   1.5%   1.9%   7.1%  El  Nino   Sep  06-­‐Jan  07   Weak   -­‐2.9%   -­‐2.5%   -­‐0.4%  El  Nino   Jul  09-­‐Apr  10   Moderate   -­‐6.1%   -­‐6.1%   -­‐3.3%  

•  Negative impact on FFB and CPO yields in six out of 9 events. •  Slower-than-usual CPO output growth in six out of 9 events ( 29 years CAGR : 6%). •  The biggest decline in Malaysian CPO output was reported during strong El Nino episode. •  CPO output fell 14% in 82/83 El Nino and 8.3% in 97/98 El Nino •  Sharp rise in new mature area help to offset the declining yield in 86/88

13  

El  Nino  and  global  palm  oil  output  

Historical impact of El Nino event on Indonesia and global CPO output

 

Source: CIMB/Oil World

Type   Period   Intensity   Chges  in  global  CPO  output   Chges  in  Indonesia  CPO  output  El  Nino   May  91-­‐  Jun92   Moderate   5.2%   na  El  Nino   Sep  94-­‐May  95   Moderate   8.5%   na  El  Nino   May  97  -­‐  Apr  98   Strong   -­‐4.3%   na  El  Nino   May  02-­‐Feb  03   Moderate   8.5%   13.1%  El  Nino   Jul  04-­‐Jan  05   Weak   8.9%   13.9%  El  Nino   Sep  06-­‐Jan  07   Weak   4.2%   8.4%  El  Nino   Jul  09-­‐Apr  10   Moderate   1.4%   5.7%  

•  Negative impact on global CPO output in one out of seven past El Nino events. •  Slower than usual CPO output growth in four out of seven events. (19 years CAGR : 7.6%) •  Indonesia estates reported slower output growth during last El Nino event.

14  

Backgrounder  on  India  edible  oils  market    •  India is the largest importer of edible oils and palm oil in 2014 •  The country imported around 59% of its total edible oils consumption in 2014. •  Palm oil’s market share of India’s total edible oils import and consumption was 64% and 38%,

respectively in 2014.

     

India  :  Breakdown  of  India’s  edible  oils  output  2014  (9.5m  tonnes)  

India  :  Breakdown  of  India’s  edible  oils  consump&on  in  2014  (20.6m  tonnes)  

Soyabean  oil  13%  

Co[on  oil  12%  

Ground  nut  oil  5%  

Sunflower  oil  2%  Rapeseed  oil  

26%  

Bu[er  27%  

Others  15%  

Soyabean  oil  16%  

Co[on  oil  5%  

Ground  nut  oil  3%  

Sunflower  oil  9%  

Rapeseed  oil  12%  

Bu[er  10%  

Palm  oil  38%  

Others  7%  

Source:  CIMB/Oil  World/MPOB  

15  

India  monsoon  season  

India oilseeds producing region

Latest update on India’s monsoon progress

Source: CIMB/Oil World/USDA/IMD

Source: CIMB/Oil World

•  Monsoon period : July- Sep •  India monsoon deficit was 15% as at 18/9/15

16  

El  Nino  and  India  oilseeds  produc&on  

Historical impact of El Nino on India’s crop production

•  Most of past El Nino events resulted in weaker soybean, groundnut and rapeseed production. However, some non-El Nino years also lead to weaker output.

•  India’s soybean output fell in 5 out of 7 El Nino events. (-4% to -20%) •  India’s groundnut output fell in 7 out of 7 El Nino events (-5% to -41%) •  India’s rapeseed output declined in 4 out of 7 El Nino events (-11% to -29%)

 

Source: CIMB/ Solvents Extractors Association (Dr BV Metha presentation slides (19/6/2015)

17  

India’s  edible  oils  import  trends    

India imports of edible oils and palm oil (1994-2014)

•  India recorded higher palm oil imports in 3 out of 5 El Nino events. •  India imported higher than usual edible oils in 4 out of 5 El Nino events. •  Palm oil share of imports could drop during El Nino due to lower discount against soybean oils

Source: CIMB/Oil World/NOAA

0.4   0.9   1.3   1.5   1.7  3.3   3.7   3.5   3.5   4.0   3.5   3.3   3.2   3.7  

5.8  6.8   6.6   6.7  

7.8   8.5   7.7  

0.1  0.3   0.3   0.6   0.9  

1.7   1.7   1.9   1.7   1.5  1.3   2.2   2.0   1.6  

1.1  

2.1   2.5   2.0  

2.6  2.7   4.3  

0.0  

2.0  

4.0  

6.0  

8.0  

10.0  

12.0  

14.0  

1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014  

Palm  oil  imports   Other  imports  ('000  tonnes)  

El  Nino  (May  97  –  Apr  98)  

El  Nino  (May  02  –  Feb  03)  

El  Nino  (Jul  04  –  Jan  05)  

El  Nino  (Sep  06  –  Jan  07)  

El  Nino  (Jul  09  –  Apr  10)  

18  

El  Nino  and  US  soybean  produc&on  •  Positive yield deviation in nine out of 11 years (82%). •  Lower than average abandonment in 6 out of 11 years (55%). •  Increased planted acreage over March intentions in 6 out of 7 years (86%)

US soybeans : Years with El Nino conditions (where average quarterly ONI is > 0.5)

Source: Agribanks Insights report (July 2015)

19  

Soybean  crop  progress  in  US        

20  

El  Nino  and  global  soybean  output  •  Good soybean output growth registered double-digit growth in 4 out of the 6 past El Ninos •  We observed weaker or slower global soybean production observed post El Nino

Global soybeans : Years with El Nino conditions (where average quarterly ONI is > 0.5)

Source: CIMB/Oil World

Type   Period   Intensity   Chges  in  soybean  output    in  El  Nino  year  

 Chges  in  soybean  output    one  year  a=er  El  Nino  

El  Nino   Sep  94-­‐May  95   Moderate   17.1%   -­‐8.9%  El  Nino   May  97  -­‐  Apr  98   Strong   20.1%   1.3%  El  Nino   May  02-­‐Feb  03   Moderate   6.5%   -­‐5.5%  El  Nino   Jul  04-­‐Jan  05   Weak   16.7%   2.7%  El  Nino   Sep  06-­‐Jan  07   Weak   6.8%   -­‐7.3%  El  Nino   Jul  09-­‐Apr  10   Moderate   22.9%   1.9%  

21  

El  Nino  :  CPO  and  soybean  oil  prices  behaviour  •  CPO price tends to react positively to EL Nino. •  Exact impact depends on the intensity and length of the El Nino as well as distribution of rainfall •  Last nine episode (exclude 04/05) showed that average monthly CPO price rose by 13-40%

Source: CIMB/Bloomberg

Price changes during ENSO cycle

Type   Period   Intensity  yoy  chg*  

CPO   Soybean  oil  El  Nino   May  82  -­‐  Jun  83   Strong   12.8%   17.9%  El  Nino   Aug  86  -­‐  Feb  88   Moderate   33.1%   -­‐3.8%  El  Nino   May  91-­‐  Jun  92   Moderate   16.9%   1.6%  El  Nino   Sep  94  -­‐  Mar  95   Moderate   39.7%   28.1%  El  Nino   May  97  -­‐  Apr  98   Strong   22.5%   15.1%  El  Nino   May  02  -­‐  Feb  03   Moderate   26.5%   18.8%  El  Nino   Jul  04  -­‐  Jan  05   Weak   -­‐10.1%   -­‐16.0%  El  Nino   Sep  06  -­‐  Jan  07   Weak   32.3%   19.3%  El  Nino   Jul  09  -­‐  Apr  10   Moderate   32.1%   16.2%  * Calculated using average prices in the impacted calendar years

22  

Project  muted  El  Nino  impact  on  2015  palm  oil  prices  Current weak CPO prices due to slower demand growth for edible oils in 8M15 High CPO inventories in Malaysia and soybean stocks globally can act as a buffer against any potential shortfall in palm oil supply in the short term. This could cap the potential upside to CPO prices due to weather risks. The recent strengthening of CPO prices partly driven by concern over dry weather in some parts of palm oil region. Project CPO prices to trade in the range of RM1,800-2,200 per tonne in the near term. Latest spot CPO price is RM2,006.50 and CPO futures prices for Oct-Dec were hovering in the range of RM2,034 to 2,103 per tonne yesterday.  

23  

El  Nino  :  CPO  and  global  soybean  stocks  

Source: CIMB/Oil World

10%  

15%  

20%  

25%  

30%  

35%  

 10    

 30    

 50    

 70    

 90    

 110    

93/94   95/96   97/98   99/00   01/02   03/04   05/06   07/08   09/10   11/12   13/14  

Soybean  stock   Stock/Supply    (Soybean stock - m tonnes) (Stock/supply ratio)

El Nino

El Nino

El Nino

El Nino

Global soybean stock trend

Global palm oil stock trend

10%  

15%  

20%  

25%  

 -­‐      

 5.0    

 10.0    

 15.0    

1994   1996   1998   2000   2002   2004   2006   2008   2010   2012   2014  

Global  palm  oil  stock   Stock/Supply    (Palm oil stock - m tonnes) (Stock/supply ratio)

El Nino

El Nino El Nino

El Nino

24  

El  Nino  a  key  wild  card  for  CPO  price  in  2016  We expect El Nino to act as a potential catalyst for CPO price in 2016

Current observations of lower rainfall experienced in key palm oil regions are expected to negatively impact CPO output in 2016

Indonesia biodiesel demand is expected to recover from Sep/Oct, following the implementation of CPO levy to help fund the price gap between biodiesel and diesel.

Malaysia and Indonesia governments are working on price stablization mechanisms.

CIMB projects CPO price to average RM2,450 per tonne in 2016 CPO price discount against soybean oil could narrow when El Nino impacts on palm oil supply are more evident.

Key risks to our price view : (1) sharp decline in crude oil price; (2) slower global growth and edible oils consumptions; (3) lower than expected decline in palm oil yields

Source: CIMB/Oil World

25  

Palm  oil  areas  impacted  by  lower  rainfall  so  far  

Source: CIMB/Columbia

Rainfall in South Sumatra Rainfall in Central Kalimantan Rainfall in South Kalimantan

0  

50  

100  

150  

200  

250  

300  

350  

400  

450  (mm)

0  

50  

100  

150  

200  

250  

300  

350  

400  (mm)

0  

50  

100  

150  

200  

250  

300  

350  

400  (mm)

26  

CPO  and  soybean  oil  prices  

Source: CIMB/Oil World/MPOB/Bloomberg

CPO prices discount against soybean oil prices

-­‐100  

0  

100  

200  

300  

400  

500  

Jan-­‐97   Jan-­‐98   Jan-­‐99   Jan-­‐00   Jan-­‐01   Jan-­‐02   Jan-­‐03   Jan-­‐04   Jan-­‐05   Jan-­‐06   Jan-­‐07   Jan-­‐08   Jan-­‐09   Jan-­‐10   Jan-­‐11   Jan-­‐12   Jan-­‐13   Jan-­‐14   Jan-­‐15  

(US$ per tonne)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Soybean Oil (LHS)

CPO (LHS)

(US$ per tonne)

Historical CPO and soybean prices

27  

 Conclusion        

•  The El Nino event has historically resulted in below-average rainfall in the two largest palm oil-producing countries in the world (Malaysia and Indonesia), Australia and India.

•  Severe drought at the palm oil estates will have negative impact on palm oil yields.

•  The impact of drought at the estates on production would typically be felt on a lagged basis (6-24 months).

•  The exact impact on FFB yields will depend on the El Nino’s strength and impact of rainfall patterns in the key planting areas

•  Our study of El Nino events revealed that Malaysian palm oil output rose at a slower rate, with 1-year lag, and CPO prices reacted positively every time El Nino occurred.

•  The El Nino news has not boosted CPO price so far as there are current sufficient stock buffer for edible oils and biodiesel demand has been weak in 2015.

•  We expect current El Nino news to have a more positive impact on CPO price only in 2016, when current high stocks have been pared down and Indonesia’s biodiesel implementation gains tractions.

     

 

 

 

 

 

 

Thank  You  Very  Much