Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
OIL PALM INDUSTRY THAILAND INDUSTRY OUTLOOK 2016-18 August 2016 Wareerat Petchseechoung [email protected] +662 296 4741 Krungsri Research’s View: The drought has depressed oil palm outputs in the main producing countries. Consequently, global crude palm oil stock has declined, and its price is increasing slightly. Domestic palm oil demands for direct consumption and alternative energy purposes are also rising. These trends suggest that the Thai oil palm businesses could continue to grow. Volatile weather poses a risk to the industry as it could lead to occasional shortages of raw materials for palm oil productions and, subsequently, refined palm oil and biodiesel. Overview There are many types of vegetable oil produced and consumed in the world, such as coconut oil, olive oil, cotton oil, peanut oil, soybean oil, sunflower oil, canola (rapeseed) oil, and palm oil; they all are substitutable to some extent. Globally, plantation area for oil palm accounts for around 5% of all oil crops. Nonetheless, oil palm possesses a high potential of oil production per area of up to 6-10 times of other plants. 1/ The output of palm oil thus stands at a significant proportion of 40% of global vegetable oil productions. World’s oil palm major plantation areas are located in Southeast Asia; Indonesia and Malaysia have combined outputs of 52.5 million tonnes or 85% of global production. Both countries thus play a significant role in directing and determining prices of palm oil in the world market. Thailand ranks third, in both plantation area and output. Since the plantation areas of oil palm predominantly cluster in a single region, as high as 75% of palm oil outputs are traded in the world market. Due to increasing demand for food and alternative energy, palm oil’s trade volume in the global market expanded 5.1% p.a. on average, during the last five years. Major consuming and importing countries include India, the EU, and China; their combined imports account for 50% of the total. Today, the world’s major exporter is Indonesia, as the country’s rapid increase in oil palm productions in the last ten years (partly a result of investment expansion by Malaysian investors), surpassing Malaysia’s level since 2006. Currently, Indonesia and Malaysia occupy world export shares of 53.4% and 37.9% respectively. As for Thailand, it ranks third in the world in terms of plantation area and output. Thai oil palm production records approximately 11-13 million tonnes p.a., which can be extracted into palm oil of about two million tonnes p.a. or only 1.2% of world’s share. Figure 1: Share of World Vegetable Oil Plantation and Production Plantation Others 32% Sunflower 10% Rapeseed 13% Production Sunflower Oil 9% Others 14% Canola (rapeseed) Oil 15% Palm 5% Soybean Oil 26% Soybean 40% Palm Oil 36% Source : LMC International. Figure 2: World Palm Oil Producers million tonnes 35 30 25 20 15 10 5 0 2011 2012 Indonesia 2013 Malaysia 2014 2015 Thailand Others Source : USDA Oil palm plantation area and palm oil extraction plants are mostly located in the Southern region2/. However, during 2008-2012, there were expansions to the Northern, Central, and Northeastern regions, per the government’s strategy to increase new oil palm plantation area to meet the nation’s demand for alternative energy plans. In 2015, Thailand’s oil palm plantation covered an area of 4.7 million rais and output of 11.01 million tonnes, with the growth rates of 5% and 7% p.a., on average, in the last ten years respectively. 1/ Oil production per rai of oil-bearing crops are: oil palm (for crude palm oil): 512 kg/rai, oil palm (for palm kernel oil): 73 kg/rai, canola (rapeseed): 89 kg/rai, sunflower: 81kg/rai, coconut: 54 kg/rai, soybean: 52 kg/rai, and peanut: 51 kg/rai 2/ Palm oil extraction plants are usually located close to the raw materials site because palm bunches need to be delivered to the facility within 24 hours to achieve the highest extraction efficiency. Krungsri Research 1 Thailand Industry Outlook 2016-18 Oil Palm Industry Figure 3: Thailand Oil Palm Plantation and Production million tonnes million tonnes 5 14 12 4 10 3 8 2 6 4 1 2 2015 2014 2013 2012 2011 2010 2009 2008 2007 0 2006 0 2005 Regrettably, Thailand’s output has increased only because of plantation area expansion and not from productivity enhancement. More than half of the production has been grown from the palm seed with low oil extraction yield of only 14-17%, compared to Malaysia’s 20% and Indonesia’s 22%. Also, most Thai farmers own small-scale of plantations with an area less than 10-20 rais, while more than 80% of palm plantations in Malaysia and Indonesia operate on a large scale. They typically lack the expertise concerning the selection of palm seeds (they still rely on imported seeds), preservation of fresh palm, harvesting period (premature harvesting would reduce oil extraction yield), as well as, incur high transportation costs. Given these disadvantages in the upstream industry, the entire Thai oil palm supply chain thus finds it difficult to compete with those from Indonesia and Malaysia. The government has therefore introduced various intervention measures, such as palm oil import quota under the supervision of the Thailand Oil Palm Board (OPB) who administers policies and plans for management and development of oil palm industry3/. The Department of Internal Trade (DIT) under the Ministry of Commerce also regulates selling prices for all stages of the supply chain including: Plantation Area (LHS) Harvested Area (LHS) Production (RHS) Source : OAE 1) Fixing the price for fresh palms giving 17% oil extraction yield to be paid by extraction plants to palm planters, having taken returns to farmer into consideration. Figure 4: Structure of Thailand Oil Palm Industry 145 Palm Oil Mills 14 Refinery Plants Annual Production Capacity: 22.8 million tonnes of crude palm oil (CPO) Annual Production Capacity: 2.4 million tonnes of 93-95% refined palm oil 60% Refined Palm Olein Collection Center (Ramp) Fresh Oil Palm (100%) - Fresh fruit bunch 87% - Loose fruit 13% separating and cleaning (soap, animal feed, coffee whiteners, B100) Export Destinations: ASEAN (54%) EU (16%) Others (30%) % 7,098.90 79.30 1.1 Wage 3,002.95 33.55 Stock 1.2 Fertilizer 2,470.05 27.59 1.3 Others (seed & agri-machinery) 1,625.90 18.16 11% of final demand 1,853.07 20.70 Total Costs per rai 8,951.97 100.00 Total Costs per kg 3.13 40% of RBD Olein (instant noodle, non-dairy creamer, ice cream) Average Cost (2015) 2. Fixed Cost Industry Export 12% of final demand THB / year 1. Variable Costs 60% of RBD Olein 41% of final demand 30% Refined Palm Stearin Refined, Bleached, and Deodorized Palm Oil (RBDPO) Cost Household Domestic Consumption Palm Fatty Acid (Chemical Industry) By Product Palm Kernel (CPO) Shells (Charcoal briquettes) Kernel Meal (Animal Feed) Fiber (Biomass) Cake Decanter (Biogas) 12 Biodiesel Plants Annual Production Capacity: 6.18 million litres of biodiesel Alternative Energy 36% of final demand Transportation (B3.5 – B7) Source : OAE 3/ Under the World Trade Organization (WTO), Thailand has set two rates of import duty for palm oil, i.e. the first 4,860 tonnes of import are subject to 20% tariff and for the amount beyond the initial quota, a rate as high as 143% is imposed. Meanwhile, import duty under ASEAN Free Trade Area (AFTA) is set at 0%, provided the merchandise has to be imported solely through the Public Warehouse Organization. Krungsri Research 2 Thailand Industry Outlook 2016-18 Oil Palm Industry 100 80 60 68 68 70 32 32 30 2011 60 55 53 55 40 45 47 45 40 20 Consumption 2015 2014 2013 0 2012 As a result of such market distortion, the cost of palm oil production in Thailand is usually higher than Malaysia’s palm oil price – which is commonly used as a reference for the world price. Therefore, around 90% of Thai oil palms are produced to serve the domestic purposes. The remainder would be exported with a quantity varying from year to year. Meanwhile, import is still small but appears to be increasing in the form of smuggling, which is particularly pursued when the spread between the domestic and world prices stretches wider than THB4, which would cover the transportation cost. % of total consumption 2010 3) Classifying bottled refined palm oil as controlled goods whose domestic retail prices are to be officially controlled by DIT – at the moment, the price of a bottle of one-litre refined palm oil is set at THB42. Figure 5: Share of Domestic Consumption 2009 2) Assigning a minimum selling price of crude palm oil (CPO) that palm oil extraction plants, biodiesel producers, and other buyers of crude palm oil will pay to the crude palm oil operators (The price typically depends on the global crude palm oil price and is currently set to be THB26.2/kg.) Biodiesel Source : OAE Domestic consumption of palm oil are in three categories: o Intermediate goods to other downstream industries (22% of domestic market) including candy and instant noodles (30% of all consumption in industries other than cooking oil and biodiesel), soap (20%), condensed milk and non-dairy creamer (15%), and other consumer products like plastics, cosmetics, and lubricants (35%). o The raw material in the biodiesel production (B100) whose demand has been rising steadily from 32% share in the total domestic consumption of crude palm oil in 2009 to 45% in 2015. The distribution of palm oil output gives priority to domestic cooking oil demand. The government, by the Department of Energy Business, regulates biodiesel production with some flexibility in the proportion of palm oil in the content mix, according to the palm oil output situation after allocating for direct consumption. In addition, in the case of a substantial fall in domestic palm production or the government’s crude palm oil inventory oil dropping below the buffer stock (usually maintained at around 250,000 tonnes), temporary import of palm oil would also be permitted. Situation During the last five years, businesses in oil palm industry’s supply chain have been growing satisfactorily. o Oil palm plantations: The authority has imposed import quota of palm oil and occasionally intervened the market with regulating settlement prices and adjustments of the required concentration of B100 in the biodiesel mix. These actions have resulted in a high selling price and subsequently satisfactory profits to the oil palm planters, especially when compared to growers of other crops. o Crude palm oil extraction plants: The business has expanded in line with the rising domestic demand, especially for biodiesel production. Crude palm oil extraction plants have also been able to adjust selling price along with the cost of fresh domestic palm. An investigation reveals a high correlation between fresh palm and crude palm oil prices of 98% in the last ten years. Besides, the price Figure 6: Sales Volume Thai Palm Oil Industry (2015) Domestic Market Domestic Market 91% Export 9% Biodiesel 45% Input to Other Industries 22 % Direct Consumption (Cooking Oil) 33 % % Share of other industries Snack & Instant Noodles 30 Soap 20 Non-dairy Creamer 15 Others 35 Source : DIT Figure 7: Farm Gate Prices of Thai Oil Palm THB/kg 9 8 7 6 5 4 3 2 1 0 Apr-16 Direct consumption of refined palm oil for cooking in households and restaurants (33% share of all domestic market uses). For all vegetable oils, palm oil occupies a significant 65% share in Thailand, followed by soybean oil, rice bran oil, and others at 25%, 5%, and 5% shares respectively. Jan-07 Jul Jan-08 Jul Jan-09 Jul Jan-10 Jul Jan-11 Jul Jan-12 Jul Jan-13 Jul Jan-14 Jul Jan-15 Jul o Source : OAE Krungsri Research 3 Thailand Industry Outlook 2016-18 Oil Palm Industry Palm oil refinery plants: Domestic demand has been increasing steadily, in line with economic growth and the rising demand to substitute palm oil for other vegetable oils (esp. soybean oil). Even though the price of Thailand’s refined palm oil is higher than those from Malaysia and Indonesia, the products from these two countries possess some unfavorable properties to Thai users, such as having dark red color and high fat content4/. As such, the import of refined palm oil as vegetable oil for direct consumption does not influence the domestic market significantly. However, the business’ profit still depends on the difference between the cost of crude palm oil and domestic selling price (regulated by DIT). Recently, the cost of crude palm oil has risen, the margin from the selling of palm oil for consumption has got narrower. Thailand oil palm industry in 2015 was rather stable. Rubber planters switched to grow palm oil as the world rubber price had plummeted since 2011. Together with the increased demand provoked by the government’s alternative energy plan, this has resulted in expansions of oil palm cultivation in recent years. However, the severe drought in 2015 has dwindled output per rai, Thailand’s overall output consequently shrank by 1.2% from 2014. The activity of crude palm oil extraction plants has thus slowed down, evidenced by Manufacturing Production Index (MPI) that dropped from 79.1 to 75.3. Domestic demand increased 5.9% YoY from: o o Demand for consumption increased 12.1% YoY along with the expansion in the downstream industries. However, the MPI of palm oil refinery plants increased only slightly from 122.2 to 122.5 because the government had allowed the import of palm oil for use as intermediate goods following domestic shortage in early 2015. Demand for palm oil as an input in the production of biodiesel decreased 1.1% YoY, as a result of the Ministry of Energy reducing the proportion of palm oil in the content mix of biodiesel from 7% to 3.5% in 1Q2015. The measure was introduced temporarily (effective during January 20th to April 16th, 2015) as palm oil output reduced and producers used material from inventory. Palm oil exports decreased substantially (-72.9% YoY) due to a drop in domestic oil palm production and the need to refill the buffer stock to cushion against shortage after the severe drought that had prolonged beyond expectation. Thailand’s palm oil stock in 2015 rose to the highest level in three years at 334,000 tonnes. It was mostly due to the expansion in the stock of crude palm oil plants, palm oil refinery plants, and palm oil warehouses to serve the continuing increase in consumption demand, while the biodiesel plants only increased palm oil stock slightly. THB/kg USD/tonne Thai CPO (LHS) World CPO (RHS) 60 1,400 1,200 50 1,000 40 800 30 600 20 400 10 200 - - Apr-16 o Figure 8: Crude Palm Oil (CPO) Prices Jan-07 Jul Jan-08 Jul Jan-09 Jul Jan-10 Jul Jan-11 Jul Jan-12 Jul Jan-13 Jul Jan-14 Jul Jan-15 Jul of domestic crude palm oil also depends on movements in the global crude oil price, which have incorporated demand and supply conditions in the world, as well as, the impact of other vegetable oils (e.g. soybean oil) as substitutes. In any case, Thai crude palm oil extraction plants also face pressures from the crude palm oil sometimes smuggled from Malaysia to be used in productions of other consumption industries. This is due to the price of Thai crude palm oil is still much higher than Malaysia’s – even when transportation cost is included. Source: DIT and KSS Figure 9: Thai Palm Oil Stock Balance ‘000 tonnes Production Import Domestic Con. 2012 2013 2014 2015 1,892.6 2,135.2 2,000.6 2,068.5 40.1 0.0 0.0 53.2 1,558.6 1,729.9 1,781.8 1,886.5 -Refined Oil Industry 932.3 957.9 939.4 1,053.3 -Biodiesel Industry 626.4 772.0 842.4 833.2 Export 307.4 565.4 255.3 68.0 Ending Stock 364.2 204.0 167.6 334.7 Source: DIT and OAE Figure 10: Palm Oil Ending Stock (by player) ‘000 tonnes 150 2014 2015 100 50 0 Extraction Mills Refinery Plants Warehouses Biodiesel Plants Source: DIT 4/ Refined palm oil in Thailand is mostly produced for household consumption (as vegetable oil). As it has to compete with soybean oil, the production process needs to deliver high-quality oil (e.g. with clear yellow color). Thai distilling process removes a higher proportion of the fatty contents than that from Malaysia and Indonesia, as their products are typically used in other production and not direct consumption. With thick color and more low-grade fats, palm oil from Malaysia and Indonesia has a lower price. Krungsri Research 4 Thailand Industry Outlook 2016-18 Oil Palm Industry Outlook million tonnes million tonnes 12 70 60 10 50 8 40 6 30 4 20 Production (LHS) Ending Stock (RHS) 2015 2016F 2014 2013 2012 2011 0 2010 0 2009 2 2008 10 2007 Prices of fresh palm and palm oil in Thailand in the next 1-3 years are expected to improve only slightly. It is because the robust demand is partly offset by the increase in output following the recent expansions of cultivation area, especially during 20082012 (in general, the new oil palm plantation will be harvestable after 2.5-3 years, and the oil extraction yield would be high during the age 8 to 25 years). Furthermore, as El Nino is fading, increased rainfalls is expected. Hence, palm oil extraction yield and, subsequently, palm oil stock would go up. Figure 8: Global Palm Oil Production, Consumption, and Ending Stock 2006 Demand for palm oil is likely to increase further, especially for the production of biodiesel following the government’s plan (see Thailand’s Oil Palm Industrial Development Plan). Meanwhile, the growth of consumption demand for palm oil as vegetable oil could be quite limited, as the price of substituting soybean oil is expected to remain low, given the outlook of world soybean price. Demand for oil palm thus would increase but not by much. The growth of demand for palm fat extracted from the refining process is expected to slow down. This is because the industries that use crude palm oil and palm fat have turned to import semifinished raw materials, and some operators have moved their production bases to other locations with lower oil palm cost. 2005 Consumption (LHS) Source: USDA As for the outlook of Thailand’s oil palm, it is expected that protective measures would carry on, and liberalization of palm oil industry would not happen in the near future (palm oil is among the 23 items of Thailand’s list of sensitive products under ASEAN Free Trade Area: AFTA). This would help foster further growth of Thailand oil palm industry in the next 1-3 years. In the long term, Malaysia and Indonesia are working together to establish the Council of Palm Oil Producing Countries (CPOPC) like the Organization of Petroleum Exporting Countries (OPEC). The CPOPC could expand to include other palm oil producing countries like Brazil, Colombia, and Thailand. This would enhance the bargaining power of the members, stabilize the world’s palm oil price, and benefit oil palm operators globally. Thailand Oil Palm Industrial Development Plan The Office of Agricultural Economics (OAE), Ministry of Agriculture and Agricultural Cooperatives, has set out the Oil Palm and Palm Oil Industries Development Strategy 2015-2026. It aims to accomplish the following objectives: o Supply side: Expanding oil palm plantation area by additional 3 million rais, while increasing output per rai from 3.2 to 3.5 tonnes and improving production to achieve oil yield of 20% – which would double oil palm production to more than 21 million tonnes. o Demand side: Boosting domestic demand through 1) increasing oil consumption by approximately 300,000 tonnes or an average of 3% p.a.; and 2) encouraging the use of palm oil for the production of alternative energy, while maintaining exports of palm oil at 0.3-0.7 million tonnes p.a. o Promoting the ASEAN Sustainable Palm Oil (ASPO) standard and laws relating to the oil palm industry to include provisions that facilitate palm output research and development by 2019. The Alternative Energy Development Plan for 2015-2036 (AEDP2015) by the Department of Alternative Energy Development and Efficiency, Ministry of Energy: The AEDP2015 has reference to the Oil Palm and Palm Oil Industries Development Strategy 2015-2026. It covers assessments of oil palm output from the areas suitable for cultivation nationwide and the net balance of palm oil stock consumption to determine a potential for future biodiesel production. The current target is to produce 14 million litres of biodiesel per day by 2036. Palm Oil Potential for the Production of Biodiesel 2015 1/ 2017 1/ 2019 1/ 2026 1/ 2036 2/ Targeted cultivation area (million rai) 4.5 5.0 5.5 7.5 10.2 Oil palm output (million tonnes p.a.) 14.3 15.4 16.7 21.4 29.5 Crude palm oil (million tonnes p.a.) 2.6 2.9 3.2 4.3 5.9 Crude palm oil balance (million tonnes p.a.) 3/ 1.6 1.9 2.0 2.9 4.2 Maximum production of biodiesel (million litre/day) 4/ 5.6 6.5 7.1 10.0 14.0 Potential Palm Oil Note: 1/ Oil Palm and Palm Oil Industries Development Strategy 2015-2026 2/ Output extrapolation based on areas suitable for cultivation of palm nationwide 3/ Crude palm oil remaining balance before deducting export volume 4/ Estimates based on fatty acid methyl esters (FAME) diesel Source: Department of Alternative Energy Development and Efficiency (2015) Krungsri Research 5 Thailand Industry Outlook 2016-18 Oil Palm Industry KRUNGSRI RESEARCH Somprawin Manprasert Chief Economist Phornphan Phoksuphat Head of Strategic Research Industry Team Chetchuda Chuasuwan Head of Industry Research Jumpon Kluaymai-ngarm Industry Strategist Talublugkhana Thanadhidhasuwanna Industry Strategist (Financial Sectors: Thailand & CLMV) Poonsuk Ninkitsaranont Senior Analyst (Healthcare, ICT, Transportation & Logistics, Modern Trade) Piyanuch Sathapongpakdee Analyst (Industry Risk Ratings Scoring and Reporting) Narin Tunpaiboon Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Wareerat Petchseechoung Analyst (Agricultural Products, Food) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Patchara Klinchuanchun Analyst (Real Estate in BMR) Definition Industry Outlook assesses market conditions and trend of the industry which will determine businesses’ profitability. It considers potential growth, price changes, cost management, competitiveness, and other conditions affecting the market. Positive Rather Positive Fair Rather Negative Negative The industry is expected to benefit from several positive factors and deliver strong performance, which could include continually high profitability, in the next few years. The industry is expected to earn abnormal profits, though there may be some concerns, such as, slower growth rate of income or sensitivity to changes in economic conditions. The industry is expected to operate normally with average level of profits and risks. The industry is expected to experience some issues adversely affecting the returns. Profitability is lower than the typical level. Some time may be needed for the industry to recover. The industry is expected to suffer from persistent or severe problems and is at risk of losses. This could include a situation where the market contracts substantially or there are major production issues. For research subscription, email [email protected] Disclaimer This document is based on public information believed to be reliable. Nevertheless, Strategic Research Department would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. Krungsri Research 6