Plantations: Under pressure

Soyabean oil and palm oil are naturally interchangeable goods, translating to strong correlation in prices for both commodities. Due to the abundance of global soyabean oil inventory, soyabean oil is currently trading at its lowest price in 5 years resulting in a narrowing of the CPO discount to soyabean price (exhibit 1). Factoring in these conditions, we maintain our bearish view for CPO prices in 2015F.

On the government’s biodiesel plan, the B15 program has been launched in April 2015, much sooner than its previous schedule in September 2015. Hypothetically, with implementation of B15, biodiesel consumption could jump 50% y-y to 5.3m kl per annum, which would require feedstock of around 4.7-5.3m tons of CPO or 10% of Indonesia’s total CPO production, suggesting potential support for CPO prices going forward.

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