MARKET DEVELOPMENT
CPO Output Expected to Surge This Year
CPO Output Expected to Surge This Year
13/03/2017 (The Star) - After the country’s last big El Nino phenomenon in 1997 and 1998, Malaysian palm oil production saw huge growth the following year.
Almost 20 years later, palm oil industry expert James Fry has tracked an almost identical pattern in the country’s production growth following the recent mega El Nino seen in 2015-2016.
In fact, he says monthly production growth in the past two months has been even higher than what was seen during the same period post-El Nino 20 years ago.
“In terms of the way in which the phenomenon is measured, using the Oceanic Nino Index (ONI), the phenomenon in 2015-2016 was dramatic in its magnitude as that seen in 1997-1998.
“At its peak, when the recent El Nino was at its worst, the pattern was incredibly similar to the event in 1999,” he told participants at the Palm and Lauric Oils Price Outlook Conference & Exhibition 2017 last week.
In terms of statistics, Fry says the event of 1997-1998 was very similar to the one seen last year.
“What we care about is what this pattern means for production,” he says.
He notes that the pattern of seeing a surge in production post-El Nino was also present in other countries including Thailand and Indonesia.
Based on the monthly production statistics released by the Malaysian Palm Oil Board (MPOB), Fry says he studied the year-on-year changes in production.
“We looked at what happened to Malaysian production in 1997, 1998 and 1999.
Fry: ‘Now, looking at the year-on-year changes in Malaysian production for the El Nino in 2015 and 2016, to my astonishment, the recovery pattern that we are seeing in production has also been very similar to what we had way back 20 years ago. I expected it to look very different.’
“The spike in production that was seen in early 1998 was related to the Hari Raya celebrations, but there was then a period of declining production in 1998, before huge growth was seen in 1999.
“Now, looking at the year-on-year changes in Malaysian production for the El Nino in 2015 and 2016, to my astonishment, the recovery pattern that we are seeing in production has also been very similar to what we had way back 20 years ago. I expected it to look very different,” he says.
Fry adds that over the last two months, monthly growth has been even faster than what it was in 1999.
“The first question, looking at how similar this experience has been, is to ask what would happen if the pattern of rapid production recovery continues to be the same - what would it be if history repeats itself?
“If we follow the same growth rate, and if history repeats itself exactly, Malaysia’s monthly production will be more than two million tonnes for six months this year,” he says.
Malaysian production
If this happens, Fry says Malaysia will end up with 22.26 million tonnes of production this year, which is nearly five million tonnes above the 2016 figure of 17.32 million tonnes.
“I don’t believe this will happen, but I also did not expect that the pattern that we are seeing would be so similar. Up until now, history has repeated itself,” he adds.
Either way, he says CPO output will soar over the first few months of the year.
Fry, who is chairman of LMC International Ltd, says his current forecasts are placed almost exactly half way between the two quantities at 19.9 million tonnes.
He notes that this number is almost exactly the same as the country’s record total production in 2015, but still 2.6 million tonnes more than 2016.
Worldwide, Fry says the projection is for CPO production growth of over six million tonnes as output gathers pace.
“If you include the Indonesian figures, we will end up with much more than six million tonnes of production recovery this year, and if you factor in 19.9 million tonnes for Malaysia, and the additional production from other parts of the world, MPOB stocks will move above two million tonnes by July and above 2.5 million tonnes during October- December,” he adds.
Earlier, Fry had said the impact of the recent El Nino had been worse in Indonesian output, compared to Malaysia, although Indonesia had seen a faster recovery.
Based on quarterly data from public listed companies in the two countries for 2015 and 2016, Fry notes that in Indonesia, output was much worse than Malaysia during the middle two quarters of 2016, but in the final quarter of 2016 they began to see a small recovery.
“In Malaysian public listed companies we saw production growth in the middle of 2015 and then we saw declines every quarter in 2016,” he notes.
On his price forecasts for 2017, Fry concluded that CPO prices at the end of this year will be similar to the level it traded for most of 2014 and 2015, assuming Brent hovers at US$55 and the ringgit at RM4.45 per dollar.
“The CPO price is set by crude oil where shale from US and Opec are having a tug of war.
“I believe that the response from shale oil will cut Brent (to) about US$55 a barrel,” he said during the presentation of his paper titled “Lessons from the latest El Nino and La Nina – The Implications for Prices”.
Based on this, Fry said FOB CPO in the third quarter will average at US$605 and the BMD at RM2500.
Then in the fourth quarter, he reckons FOB will fall to US$550 and BMD to RM2,250.
Leading industry analyst Dorab Mistry’s production forecast for Malaysia is not far from that of Fry’s, at 19.5 million tonnes, while for Indonesia, he says it will be at about 34 million tonnes.
Speaking at the same event, Mistry said production recovery has already begun in Malaysia.
“We turned the corner in December 2016 when production for the month exceeded December 2015 production,” he says.
Year-on-year, CPO production in December 2016 was up 5%, January 2016 was up 12% and February was up 15%.
“Malaysian stocks will remain tight until July 2017.
“Palm stocks will begin to recover from July 2017 but at the same time, it will face strong competition in India from South American soya oil,” he said.
Almost 20 years later, palm oil industry expert James Fry has tracked an almost identical pattern in the country’s production growth following the recent mega El Nino seen in 2015-2016.
In fact, he says monthly production growth in the past two months has been even higher than what was seen during the same period post-El Nino 20 years ago.
“In terms of the way in which the phenomenon is measured, using the Oceanic Nino Index (ONI), the phenomenon in 2015-2016 was dramatic in its magnitude as that seen in 1997-1998.
“At its peak, when the recent El Nino was at its worst, the pattern was incredibly similar to the event in 1999,” he told participants at the Palm and Lauric Oils Price Outlook Conference & Exhibition 2017 last week.
In terms of statistics, Fry says the event of 1997-1998 was very similar to the one seen last year.
“What we care about is what this pattern means for production,” he says.
He notes that the pattern of seeing a surge in production post-El Nino was also present in other countries including Thailand and Indonesia.
Based on the monthly production statistics released by the Malaysian Palm Oil Board (MPOB), Fry says he studied the year-on-year changes in production.
“We looked at what happened to Malaysian production in 1997, 1998 and 1999.
Fry: ‘Now, looking at the year-on-year changes in Malaysian production for the El Nino in 2015 and 2016, to my astonishment, the recovery pattern that we are seeing in production has also been very similar to what we had way back 20 years ago. I expected it to look very different.’
“The spike in production that was seen in early 1998 was related to the Hari Raya celebrations, but there was then a period of declining production in 1998, before huge growth was seen in 1999.
“Now, looking at the year-on-year changes in Malaysian production for the El Nino in 2015 and 2016, to my astonishment, the recovery pattern that we are seeing in production has also been very similar to what we had way back 20 years ago. I expected it to look very different,” he says.
Fry adds that over the last two months, monthly growth has been even faster than what it was in 1999.
“The first question, looking at how similar this experience has been, is to ask what would happen if the pattern of rapid production recovery continues to be the same - what would it be if history repeats itself?
“If we follow the same growth rate, and if history repeats itself exactly, Malaysia’s monthly production will be more than two million tonnes for six months this year,” he says.
Malaysian production
If this happens, Fry says Malaysia will end up with 22.26 million tonnes of production this year, which is nearly five million tonnes above the 2016 figure of 17.32 million tonnes.
“I don’t believe this will happen, but I also did not expect that the pattern that we are seeing would be so similar. Up until now, history has repeated itself,” he adds.
Either way, he says CPO output will soar over the first few months of the year.
Fry, who is chairman of LMC International Ltd, says his current forecasts are placed almost exactly half way between the two quantities at 19.9 million tonnes.
He notes that this number is almost exactly the same as the country’s record total production in 2015, but still 2.6 million tonnes more than 2016.
Worldwide, Fry says the projection is for CPO production growth of over six million tonnes as output gathers pace.
“If you include the Indonesian figures, we will end up with much more than six million tonnes of production recovery this year, and if you factor in 19.9 million tonnes for Malaysia, and the additional production from other parts of the world, MPOB stocks will move above two million tonnes by July and above 2.5 million tonnes during October- December,” he adds.
Earlier, Fry had said the impact of the recent El Nino had been worse in Indonesian output, compared to Malaysia, although Indonesia had seen a faster recovery.
Based on quarterly data from public listed companies in the two countries for 2015 and 2016, Fry notes that in Indonesia, output was much worse than Malaysia during the middle two quarters of 2016, but in the final quarter of 2016 they began to see a small recovery.
“In Malaysian public listed companies we saw production growth in the middle of 2015 and then we saw declines every quarter in 2016,” he notes.
On his price forecasts for 2017, Fry concluded that CPO prices at the end of this year will be similar to the level it traded for most of 2014 and 2015, assuming Brent hovers at US$55 and the ringgit at RM4.45 per dollar.
“The CPO price is set by crude oil where shale from US and Opec are having a tug of war.
“I believe that the response from shale oil will cut Brent (to) about US$55 a barrel,” he said during the presentation of his paper titled “Lessons from the latest El Nino and La Nina – The Implications for Prices”.
Based on this, Fry said FOB CPO in the third quarter will average at US$605 and the BMD at RM2500.
Then in the fourth quarter, he reckons FOB will fall to US$550 and BMD to RM2,250.
Leading industry analyst Dorab Mistry’s production forecast for Malaysia is not far from that of Fry’s, at 19.5 million tonnes, while for Indonesia, he says it will be at about 34 million tonnes.
Speaking at the same event, Mistry said production recovery has already begun in Malaysia.
“We turned the corner in December 2016 when production for the month exceeded December 2015 production,” he says.
Year-on-year, CPO production in December 2016 was up 5%, January 2016 was up 12% and February was up 15%.
“Malaysian stocks will remain tight until July 2017.
“Palm stocks will begin to recover from July 2017 but at the same time, it will face strong competition in India from South American soya oil,” he said.