POINTERS: Global Oils and Fats Outlook: 2nd Half of 2012

By: Tan Sri Datuk Dr. Yusof Basiron

TAN SRI DATUK DR. YUSOF BIN BASIRON aged 66, a Malaysian. He is presently holding several important positions which include: i. Chief Executive Officer of Malaysian Palm Oil Council (MPOC) ii. Director of Sime Darby Berhad iii. Chairman and Director of CBIP Berhad Apart from holding distinguished corporate positions, he is also involved in other organizations which are: (i) Senior Fellow and Past President of Academy Sciences Malaysia (ASM) (ii) Fellow member of Malaysia Scientific Association (MSA) (iii) Fellow member of Malaysian Oil Scientists' and Technologists' Association (MOSTA) (iv) Fellow member of the Incorporated Society of Planters His notable academic achievements are as follows: i. In 1972, he obtained his Bachelor in Chemical Engineering Degree from the University of Canterbury, New Zealand; ii. In 1974, he obtained his Post-Graduate Degree in Rubber Technology (ANCRT) in the United Kingdom; and iii. In 1976, he obtained his Masters Degree in Engineering specializing in Industrial Management (M.E.) and also in Business Administration (MBA) from the Catholic University of Leuven in Belgium. Before he joined Palm Oil Research Institute of Malaysia (PORIM) in 1979, he held the position of Rubber Technologist/Techno-Economist with the Rubber Research Institute (RRI)/Malaysian Rubber Research Development Board (MRRDB). In 1986, he completed his doctorate with a PhD in Applied Economics and Management Science from the University of Stirling, Scotland. He was later appointed as the Director-General of PORIM in 1992. He held the position for 8 years until April 2000 before assuming the role of the Director-General of Malaysia Palm Oil Board (MPOB), an organization which existed as a result of a PORIM and Palm Oil Registration and Licensing Authority (PORLA) merger, from 1 May 2000 until 18 January 2006.

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The total global oils and fats production in 2011 was recorded at close to 180 million metric tonnes. Out of this amount, palm oil production was just above 50 million metric tonnes while the contribution of palm oil by producers in Malaysia and Indonesia to the total production of vegetable oils in the world has increased considerably in the past several years from 14% in 1990 to 28% in 2011. The contributions of other vegetable oils products around the world are also equally important as they also feed the need for oils and fats.

Another recent development is the Eurozone debt crisis which has affected not only Europe but also the global demand for commodities. This has invariably affected palm oil price especially over the past three months. The expected to be bullish price trend did not materialise and prices turned out to be the exact opposite due to the uncertainties in the financial market. For this paper, we have also taken cognizance of this factor to forecast palm oil price for the second half of 2012.

To forecast consumption we utilise our model based on the Stock Usage Ratio (SUR) as our basis to determine the demand and price forecast. The SUR is also a useful indicator to measure the amount of surplus in stock that can be carried forward to the next year, thus determining the number of days or months the surplus will be able to support the population based on current demand. Other factors such as the Eurozone debt crisis and the influence of crude oil price over vegetable oil prices are also taken into account.

We forecast that demand from most regions may actually increase as the financial crisis abates in Europe and improvement in demand from other regions in Asia Pacific and Middle East due to the forthcoming festive season. Although palm oil production in the first six months of 2012 has been lower than forecasted, production will eventually rise in the next six months as more areas mature and better weather conditions prevail.

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Questions & Answers (8) :

Yusof Basiron

12 years ago

Mr. Fakhrul, The current bearish trend of palm oil price should not prolong as prices for oils and fats will pick up in the coming months as there will be a short supply of oils and fats. Oil World reports that South America soybean stocks are down 22-23 million MT from a year earlier while US soybean stock is down 11-12 million MT from a year earlier. In addition, Malaysian CPO production is also forecast to decline by 700,000 MT in 2012 compared to last year.

Yusof Basiron

12 years ago

Mr. Manoj, Thank you for your greetings. The price of CPKO is not at a discount to CPO. Perhaps you are referring to the Palm Kernel price, which is trading at a discount to CPO. As for the CPKO price, it has always been at a premium to CPO. The average price of CPKO as at August this year is US$1,253/MT whereas the average CPO price is US$1,078/MT. So the premium of CPKO price over CPO is about US$175/MT. Thus, CPKO price is still at a premium to CPO. The weak global economy is causing lower demand for Lauric Oils, hence the softening of prices.

Yusof Basiron

12 years ago

En. Jaaffar, The remunerative price is to ensure that CPO producers will not cut back on their production and that smallholders will not be adversely affected by the lower CPO price. The additional 2 million MT will have an effect on the stock level in Malaysia. This would lower the stock level of palm oil in Malaysia and make more palm oil available in the market and would decrease the Stock Usage Ratio.

Mohammad Jaaffar Ahmad

12 years ago

Y.Bhg. Tan Sri, It is very interesting to understand your price forecasting based on Stock Usage Ratio (USR). In your conclusion, you said that it is unlikely that the price of CPO will reached RM3,924 per MT and under the worst scenario (2nd Scenario), the lowest average price is RM2,900 per MT. Recently, the Government has confirmed that an additional 2 million tonnes CPO duty-free will be added to the 3 million tonnes, making a total of 5 million tonnes CPO duty-free from Malaysia. The justification for the increase is to manage the stocks and ensure remunerative price of CPO. What is your understanding of 'remunerative price' for producers that the Government intends to achieve? Secondly, does the additional 2 million tonnes have any bearings on your SUR in all the three scenarios? Thank you.

Manoj Jha

12 years ago

Tan Sri'- "Salamat Hari Raya in advance! What is happening to Lauric Oils CPKO at discount to CPO? Are we getting into uncharted water? Lauric oil demand visibility is very poor! Demand destruction?

A.K.M. Fakhrul Alam

12 years ago

Would the present bearish price trend of palm oil prolong until end of 2012?

Yusof Basiron

12 years ago

The Eurozone debt crisis was as a result of high debts by countries such as Greece and Spain. These countries whose borrowings are as high as 160% of their GDP has affected their ability to service these debts. For more information, please go to these links: http://en.wikipedia.org/wiki/European_sovereign-debt_crisis http://www.csmonitor.com/World/Europe/2011/1202/The-eurozone-crisis-explained-in-5-simple-graphs/Debt-as-a-percentage-of-GDP --

Idris Adeola

12 years ago

Pls i want to understand The eurozone dept crises