POINTERS 2014 MPOC
Palm Oil Internet Seminar
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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS:
Palm and Laurics Market Outlook 2022
By: Dr. Sathia Varqa

Dr. Sathia Varqa is the owner and co-founder of Palm Oil Analytics (POA), an online publisher of palm oil daily news, price, data and analysis based in Singapore, serving global commodity markets.

POA publishes two daily reports a day covering price assessments analysis of key data and market commentary.

Sathia previously worked for S&P Global Platts, a division of S&P Global (previously McGraw-Hill Finance) based in Singapore.

He holds a BA (Business Studies), Master degree in International Trade (Distinction) and a PhD in political economy from The Robert Gordon University, Aberdeen, Scotland, UK


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Absence of sunflower oil supplies from the Black Sea, tight palm oil supply situation in Malaysia, export curbs in Indonesia, dry weather in southern Brazil and soaring crude oil prices from sanctions on Russia have all combined to push palm price sharply and erratically higher in a short space of a time. Are these prices sustainable? Palm prices gained strength day by day notching triple digit rise to set multiple record highs while the premium between spot to forward months widened sharply implying very tight nearby supply. What can interrupt the price rally and for how long supply deficit keep prices energised. This presentation will look at the main factors driving palm and laurics oil prices and offer an outlook on pricing direction for the rest of the year.


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Questions & Answers (7) :
MEGAT SYAZWAN SHAH
3 months ago
Dear Dr. Many smallholders cannot cope with the hike in fertiliser prices and decided to have what I can describe as a "fertilizer holiday" despite the rise of CPO. Do you think this move will help to ease the price of fertilizers? In addition, could Malaysia depend on other countries to supply chemical fertiliser to Malaysia?
Sathia Varqa:
Dear Megat, Yes your reading is right. Fertilizer makes up significant cost of plantation especially at nursery stage but not insignificant at mature and immature stage at around 70-75% of total cost per-hectare. Smallholders mainly depend on selling FFB and FFB prices just like CPO hit record high. Smallholder that were able to harvest, sell and send to the mill would have made good revenue, but as you correctly stated the rise in fertilizer cost will mean smallholders may cut back and this will have an impact on yield in a time lag of 12-24 months. Lower use of fertilizer by smallholders will not ease price fertilizer as the reasons for the rise are driven globally. Government subsidy may help. Malaysia mainly imports fertilizer from China, as such supply of fertilizer will not be impacted unlike Indonesia which is dependent directly from Russia. China imports from Russia and re-exports to Malaysia. Apart from China, Canada and Morocco are the other 2 biggest chemical fertilizer exporters, but shipping cost to Port Klang/Pasir Gudang makes it dearer than buying from China. Malaysia also produces its own fertilizer - FGV Fertiliser and has the capability to serve the organised smallholders at a discounted rate.
3 months ago
Anthony Yap
3 months ago
Hi Dr. Sathia, On your slide page 20; any price outlook for Lauric Oil (CPKO) on 2nd half 2022?
Sathia Varqa:
Hello Anthony, Thanks for the question. CPKO stocks are predicted to move into surplus YoY to for the first time in April as yields recovery, production rises and crush rate increase. We expect local CPKO prices to be offered RM500-550/picul in April and possibly even lower into May in view of better supply. Back month Rotterdam offers are at US$2100-2200 CIF compared to Mar-April at US$2600
3 months ago
Anthony Yap
3 months ago
Hi Dr. Sathia, On your page 18 slides on UCO; why with such high prices the UCO export quantity still can projected increase by 16%? Any application on UCO in EU?
Sathia Varqa:
Hello again Anthony, That's right, UCO is going through a boom period. UCO is mainly used for biodiesel blending in the E.U. EU biodiesel blenders need feedstock and palm based feedstock are on a declining trend due to EU RED II directive, wide POGO spread and limited availability from Malaysia. Remember Indonesia is out of biodiesel export market since the anti-dumping was imposed by the E.U on major Indonesian biodiesel exporters in August of 2019. Also with limited sunflower seed/oil supply there will be increased reliance on UCO for biodiesel blending.
3 months ago
kwyap
3 months ago
Dear Dr. Sathia, What are weather condition forecast for rest of this year ? The supply of sunflower oil will eventually be exported by Ukraine for getting funds after a month of war by Russia. Seeing these factors, the supply of sunflower oil will come into the market in most urgent pace. Thank you
Sathia Varqa:
Dear KW Yap, Great question. Sunflower seed planting should be happening now (March-April) in Ukraine. Despite Ukraine’s APK-Inform analytical agency predicting sunflower sown areas to be reduced by 35% to 4.2-4.4 million hectares in 2022, the lowest in 13 years, the situation remain dynamic and its still unclear. Remember the main planting areas are all mainly in the east (Dnipropetrovsk, Kirovohrad, Kharkiv, Zaporizhia, Nikolaev, Luhansk, Odessa), nearer to Russia where the fighting is most intense and damage so destructive. Imagine the machinery, storage, crushing plants, road access, etc. Even if there is harvest (typically in September) the priority will be for domestic consumption. The country will be reeling from all kinds of shortage and food shortage is the last thing they want. So I doubt the supply from the Black Sea will come back very fast, until then palm is the king. Any peaceful settlement (like we are hearing now) will erase the war risk premium on crude and subsequently on other commodities including palm but that does not mean there is no problem with sunflower oil supply.
3 months ago
Sathia Varqa:
Weather in Malaysia and Indonesia is expected to return to normal (neutral) by June according to all models except for one. Yields are expected to see seasonal recovery. Good rainfall in Jan and Feb 2022 will provide sufficient soil moisture for decent output from June.
3 months ago
Sathia Varqa:
I saw this in the Tweet - @GreenSquareAC - Ukraine’s Minister of Ag, Mykola Solsky, said because farms are unable to sell 2021 harvest stocks for export they are short of cash, therefore the Government has expanded its lending programme to finance fert, pesticides, fuel, spare parts, fixed assets, wages, and rent.
3 months ago
WONG YQ
3 months ago
Dear Dr. Sathia, Thank you for the informative presentation. Foreseeing the fertilizer cost will be impacted all the agriculture sectors, production yield in 1-2 years will be reducing?
Sathia Varqa:
Dear Wong Yq, That is right. Any reduction in the application of fertilizer will mainly be felt within 12 - 24 months. I expect the smallholders to be the main sector to cut the use of fertilizer (N, P and K). Remember the last time CPO prices were relatively low in 2019 and the use of application was reduced the impact was felt from Jun 2020 leading to lower output and higher prices in OND 2020 and continuing the trajectory into 2021. Independent smallholders make up about 15% (863,360 hectares - source MPOB) of the total planted area in Malaysia. Smallholders make money by selling FFB. Based on 15 tons of FFB per ha, we have 12.95 mil tons of FFB or 2.60 mil tons (based on 20% OER) that could be under threat. The high cost of fertilizer and minimum wage law in Malaysia (if you can get a documented foreign worker) could cut into profits.
3 months ago
Sathia Varqa:
*Above 2.60 million tons of CPO
3 months ago
WONG HOOI PENG
3 months ago
Dear Dr. Sathia Varqa, Traditionally tallow is used as cooking oil before the convenience of bottled vegetable oil. Do you foresee tallow can play a significant role in supplementing the supply of cooking oil in the world? Thank you.
Sathia Varqa:
Dear Wong Hooi Peng, Difficult to see the role of tallow oil as a major edible oil threatening the presence of other leading oils - palm, sun, bean oil, rapeseed, canola and mustard. Regular and consistent supply is a must, so not sure if tallow can meet that condition for a global market presence. When I walk into the supermarkets in Singapore (NTUC and Giant) I usually check out what edible oil are on display. I have never seen tallow. Unsurprisingly palm olein blend dominate the shelfs. Edible oils are mainly blended due to cost, availability and taste preference. There must be some food that probably taste great using tallow. I am just not sure which one, therefore there maybe a niche market for the use of tallow oil in the global cooking oil market.
3 months ago
VS LEE
3 months ago
Dear Dr. Sathia Varqa, How do you foresee the supply of sunflower oil from Ukraine if the war continues? There are news cargo are exported by rail. I wonder how bad the situation is in term of sunoil production as more people are leaving. Will they miss the replanting season of sunflower? Thank you.
Sathia Varqa:
Hello VS Lee, Thanks for your question. Sunflower seed planting should happen now (March-April) and harvesting should be in September. Most likely it will be missed but not completely. As you know the situation is dynamic, but there are also reports (APK) saying 2022 planting area will be reduced by 35% to 4.20-4.40 million hectares. If this materializes then we may see 9.50 - 9.00 mil tons of sunflower seed or 3.80-4.00 sun oil. This is considerably lower than last projection of 13.00-13.50 mil tons of sunflower seed production. 65% of the sunflower seed planting areas are in the eastern part which is nearer to Russia where the damage is very bad but the crushing plants nearer to the ports are not damaged but operations have stalled. I have a feel that China (COFCO) will buy most of the seeds available from Russia and crush and export to China for domestic use or re-exports.
3 months ago
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