Sharpfokus04, why the Palm oil price should rise.
Why the palm oil price should rise.
When I meet investors to talk about our company, probably their most frequent question is about the palm oil price & in which direction it's heading.
1. What to say?
Should I have an opinion
I'm always trying to decide how I should answer. It's a fair question to ask, but should an IR have any strong opinion? Should the company have a view?
No
No, there's plenty of experts who are spending all their time analyzing our industry (& other related industries) to come up with Palm oil price predictions.
Yes
On the other hand. Yes, we should know what's happening in our world; we're a seller at market prices. It's also part of my job to update management about what's happening in our industry.
2. It's supply not demand
Demand is always there
One thing I do know, investors worry too much about demand driving prices. Prices have little to do with it. Demand is always there. We've always been able to sell our oil.
Edible oil demand is pretty stable
Rather than individual oils, It's total edible oil demand which is the key. Although currently slightly lower, it has grown 3-5% on average for a long time, only a 2% range.
Supply changes much more
Instead it's supply which has changed much more. Soy oil supply usually grows about 3% but grew 21% the last 3 years according to Oil World! Palm oil grew double digits in the early 2000s, now it's growing low single digits. Supply affects price.
When I meet investors to talk about our company, probably their most frequent question is about the palm oil price & in which direction it's heading.
1. What to say?
Should I have an opinion
I'm always trying to decide how I should answer. It's a fair question to ask, but should an IR have any strong opinion? Should the company have a view?
No
No, there's plenty of experts who are spending all their time analyzing our industry (& other related industries) to come up with Palm oil price predictions.
Yes
On the other hand. Yes, we should know what's happening in our world; we're a seller at market prices. It's also part of my job to update management about what's happening in our industry.
2. It's supply not demand
Demand is always there
One thing I do know, investors worry too much about demand driving prices. Prices have little to do with it. Demand is always there. We've always been able to sell our oil.
Edible oil demand is pretty stable
Rather than individual oils, It's total edible oil demand which is the key. Although currently slightly lower, it has grown 3-5% on average for a long time, only a 2% range.
Supply changes much more
Instead it's supply which has changed much more. Soy oil supply usually grows about 3% but grew 21% the last 3 years according to Oil World! Palm oil grew double digits in the early 2000s, now it's growing low single digits. Supply affects price.
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3 Supply is getting tight
Planting has slowed substantially The main thing affecting supply is new planting & Indonesian new planting growth according to our Ministry of Agriculture has slowed from 20% 20 years ago to 3% recently & maybe close to zero now. |
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Production is lower than plantation growth & now demand
For some reason, production has been even slower than planting & production is now only growing 2%. That's crucially slower than edible oil demand for the first time.
Price should rise
As it will take time to change this because any new planting would take four years to even begin to affect production, the only conclusion is price must go up.
& that's what i tell investors.
Any questions or comments, please let me know :-)
Sebastian
For some reason, production has been even slower than planting & production is now only growing 2%. That's crucially slower than edible oil demand for the first time.
Price should rise
As it will take time to change this because any new planting would take four years to even begin to affect production, the only conclusion is price must go up.
& that's what i tell investors.
Any questions or comments, please let me know :-)
Sebastian