Weekly: Veg Oil Complex Fundamental Analysis Report

Critical Price drivers

Driving factors	Direction
Market talk of lower shipments of soy oil in coming months at Indian ports	Upward
Disturbed supply chain & continuation of lockdown	Downward
Fall in consumption as other than household consumption of veg oil has gone to minimum	Downward
Decent supplies of Local veg oil	Downward
Lower m-o-m crush of soybean and mustard	Upward

Fundamental Analysis

Price Movement Summary and Market Recap:

Oil Market
Market	Oil	8th May 2019	16th May 2019	Change	% Change
Spot Markets
Chennai	Refined Sunflower Oil	890	895	5	1%
Indore (Local)	Refined Soybean Oil	800	810	10	1%
Kandla	Soy Degummed Oil	745	755	10	1%
	Soy Refined Oil	780	795	15	2%
Kandla	RBD Palmolein	675	695	20	3%
	CPO	606	620	14	2%
CIF Markets
Kandla	CPO	545	550	5	1%
	Degummed Soy Oil	641	678	37	6%
	Crude Sunflower Oil	765	790	25	3%
Futures
		8th May 2019	15th May 2019
NCDEX	Refined Soybean Oil (Jun)	748.8	770.4	21.6	3%
	Vol	10055	9730	-325	-3%
	OI	16335	20205	3870	24%
MCX	CPO (May)	590.1	610.9	20.8	4%
	Vol	1672	1949	277	17%
	OI	3936	3395	-541	-14%

- NCDEX refined Soy Oil continue to gain high in the reference week as the port stocks squeezed up on lower imports in the month of April. -MCX CPO also gained 4% over support from international market as well as tighter stocks. -Spot price at ports and CIF prices also gained in the reference period. Market will be looking for 1. US Soybean/Soy Oil weekly sales 2. US Soybean Crop progress 3. ITS/SGS Palm Oil Exports 1st to 20th Market Analysis :
-The sellers in India are taking premiums on the current stocks as the April exports has shrunk over corona lockdown. As the lockdown period is extending and port operations remaining limited and as there are multiple layers of restrictions for crews on arrivals the process of berthing and discharging is expected to be slow as compared to pre corona phase. It will take time for ports to adjust towards new normal and then only we can expect the imports coming to full throttle.

-Further as the prices have fallen and there is fall in consumption of data the monthly imports are falling m-o-m. Seasonally also the imports fall in the months of Mar-Apr-May.

-It will be crucial for Indian importers to manage imports for the peak festival demand. Also importers will be doubtful over the peak festive demand and also the prospects of further bearishness in international market especially in palm front.

- The seasonal drop in soy oil basis is expected to not visible this year due to lower crop in Argentina then what it was earlier expected due to prolonged dryness starting Feb this year, lower supply of soybean to crushers due to corona lockdown in Argentina is resulting in limited supply of soy oil available for exports. Further to add on the supplies constrain Water levels on all major rivers, including the Parana, have fallen significantly due to prolonged drought in the region, which has affected port operation. Rosario port, which handles about 95% of soymeal and soybean oil shipments from Argentina has scaled down its operations. However, in recent days, the country has experienced heavy rains which may increase the Parana’s level in three weeks. As India also pulling up their socks for booking soy oil for peak soy oil in demand, buyers in India might be looking for competitive price offered at Argentinean port.

- The new Argentinean govt has increased the export taxes on soy oil by 9% to 33% from March this year. This is even 3% high when the previous government (under the president Maurico Macari) launched phase wise relaxation of export taxes in 2015.

- As the taxes are being transferred to farmers (The taxes are adjusted to the farm gate prices in order to keep FOB prices competitive to Brazilian and US soybean) to remain competitive in the global exports market, farmers are expected to be reluctant in selling their produce. Thus delays in soybean availability might be again limit the crush and hence keeping the soy oil basis at Argentinean ports tighter against CME Soy oil.

- CME soy oil prices are under the pressure of higher stocks as NOPA reported in this month. Demand of soymeal is high as the corn processing has fallen due to fall in demand of bioethanol (corn is used in the production of bioethanol) from the transport sector this has resulted in the limited supply of DDGS (a substitute to soymeal) and hence resulting higher demand of soymeal. CME Soymeal has remained tighter as compared to soybean due to this reason and hence giving scope for better crush margin realization.

- May WASDE report has indicated that the soybean acreages to be higher this year and the same was reported in the March Planting prospect report. However as USDA is expecting 10 million tons higher exports y-o-y over Chinese resumption in demand after African swine flu hit Chinese swine industry drastically last year and implementation on of phase 1 of US-China trade negotiations.

- At Indonesian and Malaysian front the market is still under the weight of the supplies and same is expected to continue in upcoming months as the production seasonally rises. The demand from India is expected to remain subdued due to demand destructions as well as supply chain disruptions. The stocks at ports and pipeline are also tighter and hence importers might be looking for covering some losses that they made after the shortest bull run that Veg oi oil complex witnesses at the end of last year.

- Stocks at the ports in the month was at the end of Feb was at 11.1 lakh tons with 5 lakh tons of CPO, 1.3 lakh tons of olein, 2.6 lakh tons of soyoil and 2.2 lakh tons of soy oil. The pipeline stocks in the SEA interim report was at just 4.2 lakh tons at the end of March’2020 as the port operations remained restricted. - As domestic crush has been severely impacted due to corona, the availability of local soy oil is been limited in the last two months. The availability of soy oil from domestic crushing is going to be lower as compared to previous estimates. Though this year the crop was lower the end stocks we might see higher on y-o-y basis. - We might see refined soy oil at Indore to remain at premium over imported one in the coming months of this season.

- New crop planting is going to start from next month and as farmers have realized handsome prices at the start of the season we might see the acreages to be same as last year or even higher. In MP there will be tough competition from pulses especially Urad.

- Indian crush might not see rising even after lockdown as the poultry market has totally crashed over closure of HoReCa(Hotels Restaurants and Caterers) , destruction of marriages demand and consumers refraining themselves from eating meat. In initial days of lockdown there was no takers and farmers sell their chicken at throw away prices. Noe as very limited farmers are picking up the farming prices have improved drastically but the two to three months soymeal consumption has evaporated. According to SOPA nearly 10 lakh tons of equivalent soybean consumption has gone.

- Sun oil might continue to see premium over other oils as the seasonal supplies from origin declines. Since sun oil is consumed in households we might continue to see the sun oil remaining at premium from rival soy oil till new season starts.

- availability of other soft oil such cotton seed oil and rice bran oil which competed soy oil is also limited due to lower crush on lockdown. Thus any supply squeeze from there side as the labourers shortage might result in under utilization of capacity and especially rice bran oil of edible grade might not be produced in the qty the way they were produced normally. Thus the demand shift is expected to be towards imported side which is readily available.

News Update

- According to MPOC Crude palm oil output in Malaysia, will drop in 2020 by 1% from a year earlier because of drier weather last year limiting yields and the country's lockdowns this year to prevent the spread of the coronavirus. Output this year is expected to drop to 19.7 million tonnes from a year earlier. This is in line with our expectations as the dryness in Malaysia and Indonesia persisted for prolonged period which was very similar to the last el nino year. It was due to this dryness Jan production was at record low.

- Further Sabah, Malaysia's largest palm oil producing state, temporarily shuttered some plantations and mills during a six-week partial lockdown that started in March to contain the coronavirus outbreak. This is also accounted for lower production.

-According to data from the Malaysian Palm Oil Board, fresh fruit bunch yields in the first quarter of 2020 fell 21% to 3.37 tonnes per hectare (1.36 tonnes per acre), compared to 4.28 tonnes per hectare in 2019.

- The MPOC forecast Malaysian palm oil stockpiles at the end of 2020 to dip to 1.9 million tonnes from 2 million tonnes last year. MPOC also said the extent of demand destructions of palm oil has reached its lowest level and the demand is expected to improve from coming months.
- Govt of India has suspended all 39 licenses issued for import of about 4.55 lakh tons of refined palm oil announced in a memorandum on 11th May. Refined palm oil is already brought under restrictive list and post that 39 licenses has been issued to import refined palm oil which was suspended. Thus me might see in coming months almost nil imports of refined palm oil. Refined palm oil is already not being quoted at CIF Indian ports and also the imports has drastically reduced from Jan this year.

- According to SEA due to lockdown the monthly demand of veg oil has fallen by 25%. India monthly requirement is 19-20 lakh tons and thus in the period Mid March to Mid May nearly 10 lakh tons of demand has been evaporated.

- According to GAPKI, the stocks of palm in March fell to 3.42 million tons and production fell to 3.98 million tons.

- To boost exports Malaysia has eliminated export duty on June. The export duty in the month of April was 4.5%. Earlier Malaysia has kept the export duty on refined palm oil lower over crude palm oil to push exports of the same and support it’s refining industry. But after India placed the refined palm oil in restricted category, Malaysia was bound to lose market share and hence to remain competitive eliminated the export duty on CPO.
- As the market is opening up in China after controlling the corona spread, China is ramping up the purchases from Malaysia. In 1 to 15th May period cargo surveyor reported May-1-15 exports to be 7.1% up as as compared to last month.

- At sunflower oil front, Russian farmers planted sunflower seed throughout 5.5 mln ha, or 67.4% of the forecasted areas as on May 14. It is estimated that Russian sunflower acreages might reach 8.5 ml hectares. The weather is relatively dry as compared to last year and hence the yield might be under pressure this year.

Supply and Demand Reports Update and analysis :

- Malaysia's palm oil inventories at the end of April jumped 18.26% from the previous month to 2.05 million tonnes. April production rose 18.28% from March to 1.65 million tonnes. Exports were up 4.4% from March to 1.24 million tonnes. The major contributor for the rise in stocks was the fall in consumption which is 40% on m-o-m basis to lockdown. Malaysia has extende the lockdown till June and hence May month consumption is also expected to be low.

MPOB May'2020 Update
	Apr-20	Mar-20	Apr-19	m-o-m %	Y-o-y %
Ouput	1.65	1.40	1.65	18%	0.2%
Stocks	2.05	1.73	2.73	18%	-25.1%
Exports	1.24	1.18	1.65	4%	-25.1%
Imports	0.57	0.79	0.61	-29%	-7.4%

- NOPA reported 171.8 Million bushels of soybeans crushed in April down from March crush but a new record for April month. In March 181.374 M bushels of soybean has been crushed which is a record for all months. Crush has been higher due to the rise in domestic demand of soymeal which is due to replacement of Distillers Dries Grain and Solubles (DDGS). DDGS production in US has fallen as corn-based ethanol production has declined due to lower corn milling for bioethanol. Bioethanol demand has fallen as the US transportation segment is not running at it’s full scale due to corona.

- Thus the soy oil which is a byproduct of soybean crushing stocks are rising as the same is not disposed in the quantum they are produced either as biodiesel or in food sector which has resulted in rising soy oil stocks in US.






- May WASDE has given the first estimates of 2020-21 marketing year with global stocks to be falling by 1.9%. US acreages is rising by 9.7% y-o-y and also yield by 5.1%. Thus production is estimated at higher side. China imports is going to be higher by 4%.

- Argentina production has been lowered so as Brazil production from the April estimate. US exports has also been curtailed raising the stocks by nearly 21%. Overall the report is bearish for soy complex.

Price Outlook :-
Market is expected to see upside movement following tighter stocks at Indian ports and also support from international market. International market are moving up over support from crude oil prices and improving exports in May. China has started buying palm oil from the producing countries. However, any sharp rally is restricted over gloomy consumption scenario throughout world.