Crude Palm oil (CPO)– Prices continue to surge on subdued world output and higher biodiesel consumption

1. Crude Palm Oil
Crude Palm oil (CPO)– Prices continue to surge on subdued world
output and higher biodiesel consumption
6th December, 2016

2. Crude Palm Oil
Price Performance - Monthly
• In 2016, Crude palm oil (CPO) futures market
increased by about to 35% till November.
• CPO prices on MCX touched its highest level in
September mainly due to higher prices in
international markets sighting tightening supplies
• Lower world production, imposition of export
taxes in Malaysia and Indonesia coupled with
higher tariff values by Govt of India makes the
imports expensive for India.
2
• The tariff values of CPO and RBD Palmolein have also reached its highest levels during the
month of August and September.
• With the increase in international and domestic prices on 23rd September 2016,
Government lower its import duty on crude palm oil and refined vegetable oils by five
percentage points to 7.5% and 15%, respectively, as part of efforts to curb food inflation.
• Moreover, the forecast of bumper kharif oilseeds – Soybean and Groundnut too
pressurize the prices of CPO from the higher levels achieved in September 2016.
421.1
561.1
509.2
572.7
555.0
380
430
480
530
580
630
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Source: MCX
Monthly Average Prices CPO (Rs per 10kg) - MCX

3. Crude Palm Oil
Tariff Prices Increased in 2016
3
• The tariff value of CPO increase 39% in
2016 to $764/tonne in December 2016
from $550 /tonne in January 2016
• The tariff value or Base import prices
revised every fortnight by the Central
Board of Excise and Customs (CEBC).
• The tariff is determined and fixed taking
into account the prices in international
markets, as well as changes in the foreign
exchange rate.
• The fixing the tariff value means the import duty shall be chargeable with reference to the
tariff value fixed by the CBEC.
• Governments imposes tariffs to raise revenue or to protect domestic industries from
foreign competition which directly affect the prices of the goods in the domestic markets.
• Importers generally purchase foreign-produced goods when there is big demand and
available at cheaper rates than the domestic prices.
553
747
653
770
764
550
600
650
700
750
800
18-Jan-16
08-Feb-16
29-Feb-16
21-Mar-16
11-Apr-16
02-May-16
23-May-16
13-Jun-16
04-Jul-16
25-Jul-16
15-Aug-16
05-Sep-16
26-Sep-16
17-Oct-16
07-Nov-16
28-Nov-16
CPO Tariff Prices in 2016 ($per tonnes)
Source: Central Board of Excise and Customs

4. Crude Palm Oil
Higher domestic imports
4
 As per USDA latest report, India's palm oil
imports in 2016/17 are likely to rise 10% to 10
million tonnes (mt) from a year earlier due to
growing population and higher income levels
drive up edible oil consumption.
 India's edible oil consumption is likely to grow
6.25 percent to 22.1 mt in the year to October
2017.
 The imports of edible oil particularly the palm oil will increase as country reduced import
duty on crude palm oil to 7.5% from 12.5%, and on refined to 15% from 20% to ease
inflationary pressure.
 Palm oil imports fell to 8.44 mt in 2015/16 (Nov’15-Oct’16) against 9.54 mt a year ago,
mainly due to reduced premium on soya oil over palm oil.
 As per SEA data, imports of RBD palmolein in 2015/16 (Nov-Oct) increase to 2.63mt vs
1.66 mt but, crude palm oil (CPO) imports were lower at 5.75 mt Vs 7.72 mt.
7,700
8,200
8,700
9,200
9,700
10,200
10,700
2016/17
2012/13 2013/14 2014/15 2015/16 2016/17 Nov
Palm Oil Imports to India (1000 tonnes)
October-September Cycle

5. Crude Palm Oil
Domestic Consumption and availability
5
 As per USDA latest monthly report, India's palm oil
consumption will be increased by 10.87% to 10.2
million tonnes (mt) in 2016-17. Last year the
consumption was about 9.2 mt.
 The domestic consumption of palm oil over the years
has increase from 8.2 mt in 2012/13 to 10.2 mt
2016/17 as per capita consumption of edible oil in
the country increase by about 5-8 %.
8,250
9,200
10,200
7,700
8,200
8,700
9,200
9,700
10,200
10,700
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Oct Nov
Palm Oil Consumption in India (1000 tonnes)
October-September Cycle
 As per the estimation by Solvent Extractor Association (SEA), for 2016/17, the estimated oil
consumption in the country per capita is forecasted at 16.89 kg. Thus, the requirement of
edible oil in the country is approximately 24.4 million tonnes.
 The production of palm oil in the country is expected to be about 0.27 mt (2.7 lakh tonnes )
in 2016/17 compared to 0.22 mt in 2015/16.
 The domestic oil production other than CPO will be about 7.9 mt in 2016/17. Therefore, the
total availability of domestic edible oil in 2016/17 would be 8.17 mt.
 So there is more scope of edible oil imports in the country in the form of CPO and soy oil.

6. Crude Palm Oil
World Production to recover 2016/17
6
 According to the U.S. Department of Agriculture
data (USDA), world palm oil is forecast to recover
by nearly 9.6% to 64.5 million tonnes (mt) in
2016/17 from a year ago, due to favourable
weather conditions after El Nino year last year.
 Production in Indonesia and Malaysia, which
account for 80% of global supplies will recover
about 9.4% and 13% respectively compared to
previous year output.
 Indonesia and Malaysia experienced a wet dry season in year 2016, which is favourable for
oil production, so production will be back to its normal trend (in 2017).
 Output of crude palm oil in world No.1 producer- Indonesia could increase to 32-33 mt
next year while Malaysia output may touch 20 mt in 2016/17 season.
 In 2015/16, world palm oil production is estimated to decline by nearly 5% to 58.8 mt in
from a year ago, following dryness caused El Nino weather pattern earlier this year.
56,000
57,000
58,000
59,000
60,000
61,000
62,000
63,000
64,000
65,000
2012/13 2013/14 2014/15 2015/16 2016/17
Palm Oil: World Production (1000 tonnes)
October-September Cycle
Source:USDA

7. Crude Palm Oil
7
Biodiesel mandate to increase in South Asia
 Malaysia earlier like to implement higher biodiesel mandates (B10) for the
transportation and industrial sector starting from Dec 1, 2016.
 But, Malaysia has decided to delay the B10 biodiesel mandate as palm oil prices have
risen considerably and diesel price at the pump will go up and burden many people.
 The programme would require a minimum bio content of 10 per cent in biodiesel for the
transport sector, and 7 per cent for the industrial sector.
 Malaysia has twice delayed the implementation of higher biodiesel mandates this year.
 Indonesia sticks to B20 biodiesel , despite rising palm oil prices - The biodiesel B20 is a
blend of 20 per cent palm methyl ester (PME) and 80 per cent regular diesel.
 Indonesia, the world's top palm oil producer, began collecting a US$50 per tonne levy on
crude palm oil exports in July 2015 to fund biodiesel subsidies.
 As per the government agency, Indonesian demand for crude palm oil (CPO) for use in
biodiesel is expected to grow 68% to 10.6 million tonnes by 2020 from a forecast 6.3
million tonnes this year.

8. Crude Palm Oil
Global palm oil Consumption to improve
8
• As per latest USDA report, palm oil
consumption for 2016/17 projected to increase
by 5% to 63 mt compared to previous year
consumption of 60 mt.
• The top five consuming countries of palm oil
are India, Indonesia, European Union, China
and Pakistan.
55,000
56,000
57,000
58,000
59,000
60,000
61,000
62,000
63,000
64,000
2016/17 2016/17
2012/13 2013/14 2014/15 2015/16 Oct Nov
World palm oi Consumption (1000 tonnes)
October-September Cycle
• The consumption is expected to increase in India, Indonesia, China and Pakistan.
• Global palm oil consumption for palm oil forecast reduced by 2% in November 2016 as its
price increase makes it less competitive with substitutes like soy oil and rape oil. For China,
palm oil consumption in 2016/17 is expected to reduce to 5 million tons—down 100,000
tons from last month forecast but increase 2,50,000 tonnes from last year.
• The consumption in Indonesia in 2016/17 is forecasted to increase by more than 6% to 9.1
mt because of biodiesel mandate similarly Malaysia will also consume 1.47% higher this year
to 3.2 mt.

9. Crude Palm Oil
Malaysia Nov palm oil stocks to Increase
9
• As compared to last year, the stocks are at very
low levels as shown in graph.
• However, Malaysian stockpiles in November
may rose 7.4% to 1.69 mt from the previous
month, based on a Reuters survey of eight
planters, traders and analysts.
• This monthly gain in stocks would be the
sharpest since June, but still at the lowest
November levels in six years.
• Slower exports are seen contributing to the inventory build-up.
• November exports are estimated to have declined 9.8% from October to 1.29 million tonnes,
led by a slump in demand from India.
• Output likely fell 2.8% in November to 1.63 million tonnes, the lowest monthly figure since
July, making for a second straight month of declines as fresh fruit yields are still being
impacted by the lingering effects of last year's El Nino.
2.21
1.57
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
Jan Feb Mar Apr May June Jul Aug Sep Oct
Stock Position - 2015 & 2016 (in Million tonnes)
2015 2016Source: MPOB

10. Crude Palm Oil
Indonesia production to bounce back next year
10
• As per the latest GAIN report, Palm oil
production in Indonesia in MY 2016/17 (market
Begin year Oct) is expected to exceed 2015/16
production with 35 mt as LA Nina sets in may
result in early onset of rainy season on 2017.
• Indonesian palm oil consumption is led by
biodiesel consumption. Total palm oil
consumption is expected to be 3.6 MMT in MY
2015/16 and 2016/17.
• Indonesian palm oil exports fell nine percent during the January-September 2016 period
compared to the same period in 2015. The decline in exports is related to increasing palm oil
prices, which reached $651/MT in October 2016, compared to a low of $483/MT in
September 2015.
• Palm oil stocks MY 2016/17 are expected to grow to 1.786 mt, reflecting increasing
production while MY 2015/16 ending stocks are set at 1.406 mt, reflecting strong domestic
consumption through biodiesel blending.
28
29
30
31
32
33
34
35
36
2012/13 2013/14 2014/15 2015/16 2016/17
Palm oil output in Indonesia (million tonnes)

11. Crude Palm Oil
Price outlook
11
• CPO prices have witness an uptrend in last one month tracking firm International prices.
Moreover, increase in tariff values and good demand from the stockists support prices
when the domestic imports of palm oil are dropping in October on month and year.
• The Government of India may lowered its import taxes of edible oil oo reduce domestic
prices and encourage further imports to improve supplies.
• The total palm oil production in Malaysia and Indonesia has steadily risen since February
but the October peak output was still the lowest output in 6 years. World palm oil stocks in
were at a 9-year low this September and October and the increase in domestic
consumption due to biodiesel use will definitely support CPO prices.
• We expect CPO (CMP: Rs.560/10 kg) for December delivery to trade high towards Rs.
570/580 levels in case of firm international prices. Moreover, higher tariff value and
expectation of healthy increase in Indian palm oil imports for 2016/17 and lower
worldwide stocks levels may keep the prices higher till there is any substantial increase in
production.
• However, the prices may be controlled by the government by reducing the import taxes of
the prices surged beyond 600 levels.

12. Crude Palm Oil
12
Technical outlook
• On the above monthly price chart of MCX
CPO, it is clearly seen that prices are trading
in the Bullish trend after making a low of
352.20 level in Aug 2015.
• As per the chart structure prices are in
“Higher Top Higher Bottom” formation
signaling Bullish Trend.
• Besides, prices are continuously following the
Bullish long term trend line from last couple
of months.
• According to the moving average (Exponential Moving Average), prices are trading above its
5, 20, 50 and 100 (monthly basis) EMA, which is positive for the positive trend. Technical
indicator 14 month RSI is rising and MACD showing positive divergence and both suggest
optimism in the CPO prices.
• We expected CPO prices to find support at 520 / 530 levels and resistance can be seen at
570 – 580 levels. The positive chart structure and technical indicators shows optimism,
hence we recommend Buy in CPO.
Buy MCX CPO at 510 – 520, SL – 480, Target – 570 / 580

13. Crude Palm Oil
Published in FY 2012. © Angel Broking 2011-12
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13
Ritesh Kumar Sahu
Analyst- Agri Commodities
Landline: 022 3935 8165
Anuj Gupta
Head–Technical Research (Commodity & Currency)
Anuj.gupta@angelbroking.com
(011) 4916 5954