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May 2017
Global Palm Oil Sector:

Finding Opportunities
Despite Rising Challenges
Global Palm Oil Sector: Finding
Opportunities Despite Rising Challenges
MAY 2017
Published by: BMI Research
Copy deadline: May 2017
ISSN:
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DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.
Global Palm Oil Sector: Finding Opportunities Despite Rising Challenges May 2017
CONTENTS
Global Palm Oil Sector: Introduction ................................................................................. 7

Finding Opportunities Despite Rising Challenges ............................................................................................ 7
Table: Global Palm Oil Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Palm Oil Price Outlook ........................................................................................................ 9

Palm Oil: Subdued Price Outlook In 2017 And 2018 ........................................................................................ 9
Table: BMI Palm Oil Price Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table: BMI Palm Oil Production Forecasts And Risks ('000 tonnes) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Table: BMI Palm Oil Price, Production Balance & Stocks Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Palm Oil Consumption Outlook ........................................................................................ 16

Growing Obstacles For Palm Oil In Europe Despite Sustainability Efforts ......................................................... 16
Table: European Union Palm Oil Consumption (2009-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Palm Oil Biodiesel: Positive Outlook In 2017 But Uncertainty Beyond .............................................................. 22
Robust Palm Oil Demand In Africa And The Middle East Ahead ....................................................................... 28
Table: Select Countries - Palm Oil Consumption Forecasts (2013-2021f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Palm Oil Companies: The Four Key Themes .................................................................. 34

Palm Oil Companies: Persisting Challenges & Strategy Shifts ......................................................................... 34
Table: Select Companies - Operational Highlights (As Of Q117, 2016 Annual Reports) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Table: Select Companies - Financial Highlights, FY16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Key Palm Oil Data .............................................................................................................. 43

BMI Palm Oil Production & Consumption Forecasts ..................................................................................... 43
Table: Palm Oil Production Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Table: Palm Oil Consumption Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
© Business Monitor International Ltd Page 5

Global Palm Oil Sector: Introduction

Finding Opportunities Despite Rising Challenges
After recording spectacular growth in the 2000s, the global palm oil sector has entered a period of slower
growth in recent years. Palm oil players now have to adapt to more lacklustre production, prices and
profitability fundamentals.
Looking ahead on a five year horizon, some of the long-term drivers of the sector will continue to help the
sector expand in the coming years, including the rise in global vegetable oil demand and the price
competitiveness of palm oil. More recent trends, such as new replanting programmes, focus on plantation
productivity and the positive outlook for palm oil-based oleochemicals providing new end-markets will also
support the sector looking forward. However, the operating environment for the sector has become more
challenging, amidst growing hurdles to plantation expansion, fast-rising production costs, slowing
consumption growth globally and mounting sustainability concerns related to palm oil.
Consequently, although palm oil's golden years of fast growth are now behind us, we believe the sector still
boasts some strengths and new opportunities that will help it expand in the coming years, - albeit at a slower
pace than in the past. Companies investing in new product applications and new market access and seriously
addressing sustainability issues will be well placed to grow going forward. Based on our production and
price forecasts, we believe the global palm oil market will expand from USD62.3bn in 2016 to USD83.6bn
by 2021, at an average annual growth rate of 6.1%, compared with the impressive 18.2% annual growth
recorded on average over 2007-2016.
Table: Global Palm Oil Market Value
2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f
Global Palm Oil Market
Value (USDbn) 28.82 39.93 53.51 53.77 49.66 54.00 54.53 62.34 67.80 70.55 74.68 79.01 83.58
% Chg y-o-y -18.9 38.6 34.0 0.5 -7.7 8.8 1.0 14.3 8.8 4.1 5.8 5.8 5.8
Source: BMI
Some of the key findings of this special report include the following:
■ Regarding prices, palm oil prices will trend lower in 2017 averaging MYR2,600/tonne over the year, as
global supply recovers from El Niño. On a five-year horizon, global palm oil

consumption growth will not be as robust as in the past, while production will continue to grow, keeping
palm oil supply ample. Although palm oil prices could receive a temporary boost from weather-related
global oilseed production disruptions or a cyclical tightening of the soybean market, we believe ample
global supply for oilseeds and palm oil under normal weather conditions mean palm oil prices will
remain subdued on a five-year horizon.
■ Palm oil production is now in a recovery phase following the significant impact of the 2015-2016 El
Niño episode on yields and output. In the longer term, we expect the ongoing slowdown in global palm
oil production growth to resume. Growing constraints to plantation expansion in Malaysia and Indonesia
will drive this trend, due to the lack of available land in these densely populated countries, stricter
environmental laws and rising sustainability efforts by the sector.
■ Looking at palm oil consumption in importing countries in the coming years, we believe the bright spot
for consumption will remain India for the time being and the country will become an increasingly
important driver of palm oil prices given the lacklustre growth we forecast in other key import markets.
In contrast, the outlook for palm oil consumption in China and the European Union is subdued.
■ Although palm oil based biodiesel is seen by many as a strong positive driver for the sector going
forward, we see it as an insufficient response by the Malaysian and Indonesian governments to offset
slower growth in traditional export markets. As such, we believe biodiesel production will provide
modest support to palm oil consumption and therefore to palm prices in 2017 and beyond.
■ The improvement in palm oil companies' earnings that started in 2016 with the temporary rise in palm oil
prices will persist into 2017, driven by the rebound in palm production following El Niño. However,
production and prices fundamentals for the sector have been deteriorating over recent years and the
operating environment will remain challenging, forcing companies to focus on efficiency
gains and investment towards higher-value downstream products, as well as on improving their
sustainability record.

Palm Oil Price Outlook

Palm Oil: Subdued Price Outlook In 2017 And 2018
BMI View: We maintain our view for palm oil prices to trend lower in 2017 and for prices to average lower
on a y-o-y basis at MYR2,600/tonne, as global supply recovers from El Niño. On a five-year horizon, global
palm oil consumption growth will not be as robust as in the past, while production will continue to grow,
keeping palm oil supply ample and prices subdued.
Table: BMI Palm Oil Price Forecasts
Current 2017 2018 2019 2020 2021
MYR/tonne, 2,621 2,600 2,580 2,620 2,660 2,700

ave
Note: Three-month MDE palm oil. Source: BMI. Last updated: May 17 2017
Short-Term Outlook (three-to-six months)
Palm oil prices will remain supported around the MYR2,400-2,800/tonne range in the coming two-to-three
months, as international stocks remain low following the delayed impact of El Niño on South East Asia's
production in 2016. Palm oil prices tumbled in recent months, driven by the first signs of a recovery in tree
yields and production and anticipation of a looser market in 2017. However, we believe the market remains
tight at the moment with stocks at multi-month lows, which will put a floor on prices for now.
We maintain our view for palm oil prices to trend lower over the coming months, especially towards the
second half of the year. We continue to forecast prices to average MYR2,600/tonne over 2017, compared
with MYR2,632/tonne recorded in 2016. The recovery in yields will accelerate in the coming months, and
global supply will improve, which will help palm oil prices ease from current levels. Global palm oil
production will grow by 10.1% or 5.9mn tonnes in 2016/17, after it decreased for the first time in 18 years
(by 4.8%) last season.

Declining Further In 2017 And 2018

Three-Month MDE Palm Oil, MYR/tonne (monthly chart) & BMI Average Price Forecasts
Note: Horizontal lines represent BMI's annual average price forecasts. Source: Bloomberg, BMI
Long-Term Outlook (six-to-24 months)
Prices will remain weak in 2018, averaging lower y-o-y over the year, at MYR2,580/tonne as global supply
will continue to recover. However, rising soybean and crude oil prices will prevent palm oil prices
collapsing.
In the longer term, global palm oil consumption growth will not be as robust as in recent years, while
production will continue to grow in the coming years - albeit at a slower pace - keeping palm oil supply
ample. Although palm oil prices could receive a temporary boost from weather-related global oilseed
production disruptions or a cyclical tightening of the soybean market, we believe ample global supply for
oilseeds and palm oil under normal weather conditions mean palm oil prices will remain subdued on a five-
year horizon.

Stocks Will Take Time To Rebuild

Malaysia - Palm Oil Production, Stocks ('000 tonnes, three-month moving average) & MDE Palm Oil Prices (MYR/
tonne)
4,000
3,000
2,000
1,000
0
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Stocks Production Palm oil Prices
Source: Bloomberg, MPOB, BMI
Production To Rebound In 2016/17, But Slow Down In The Long Term
Global production will recover in the 2016/17 season, running from October 2016 to September 2017, after
the dry weather induced by El Niño led to a sharp reduction in output in 2015/16. As a result, the palm oil
market will start loosening in 2017.
The 2015-2016 El Niño episode had an unprecedented impact on palm oil production due to the two long
waves of dry weather it brought to South East Asia. As a result, output in 2015/16 decreased for the first
time since 1997/98, by as much as 4.8% y-o-y. Fresh fruit bunches yields came in at the lowest level since
the Malaysian Palm Oil Board started publishing data. El Niño strengthened over the course of the 2015/16
season and the impact on production consequently worsened, leading to a sharp rally in prices over H216.
The palm oil market is now in a recovery phase. We forecast palm oil production to grow by 10.1% y-o-y to
reach a record high of 64.5mn tonnes in 2016/17. Malaysia's production will outperform in terms of growth

as output was more severely affected in 2015/16. We forecast output to expand by 13.5% y-o-y to 20.1mn
tonnes, compared with 9.4% growth to 34.9mn tonnes for Indonesia.
Table: BMI Palm Oil Production Forecasts And Risks ('000 tonnes)
2015/16 2016/17f Risks 2017/18f Risks

Indonesi Balance
a 31,900 34,899 Upside - Stronger than expected recovery in yields following El Niño. 36,678 d
Balance
Malaysia 17,690 20,078 Upside - Stronger than expected recovery in yields following El Niño. 20,921 d
Source: BMI, USDA, Indonesian Palm Oil Association, Malaysia Palm Oil Board
In the longer term, we expect the ongoing slowdown in global palm oil production growth to resume and
forecast output to expand by 4.4% annually on average from 2017/18 to 2020/21. This compares with the
spectacular growth recorded in the 2000s when production grew by 8.9% on average every year. Growing
constraints to plantation expansion in Malaysia and Indonesia will drive this trend, due to the lack of
available land in these densely populated countries, stricter environmental laws and rising sustainability
efforts by the sector. Palm oil players are now heavily focusing on improving tree and mill yields, which
have been stagnating for years, but these efforts will take years to pay off.
With slower plantation opportunities in the two largest producers, interest to invest in secondary producers
is strong at the moment and we forecast palm oil production to accelerate in some of these countries, with
Colombia, Nigeria and Guatemala standing out. However, absolute output coming from these secondary
producers will remain low relative to the two palm oil giants, Malaysia and Indonesia. As such, the
geographic repartition of production will barely change over the coming years based on our forecasts.

Market Will Remain Dominated By Indonesia Despite Growth In Secondary Producers

Select Countries - Palm Oil Production Growth (% chg y-o-y) (LHC) & Production By Country, 2021f (% total) (RHC)
f = BMI forecasts. Source: USDA, MPOB, GAPKI, BMI
Lacklustre Consumption Growth In The Coming Years
Global palm oil consumption will grow at a stronger 5.0% y-o-y in 2017, compared with 1.9% growth
recorded in 2016 and the 10 year average growth of 6.3%. This growth will be supported by the ongoing
expansion of biodiesel use in Indonesia and by the increase in import demand from India and China in 2017.
However, palm oil consumption growth will slow in the coming years and grow by a weak 4.1% y-o-y on
average over 2018-2021, compared with the 10 year average of 6.3% recorded over 2007-2016.
The outlook for biodiesel production is positive in 2017 for Indonesia and Malaysia, as palm oil prices will
decrease, boosting the competitiveness of the biofuel relative to fossil fuels. The funds collected by the
Indonesian levy programme funding subsidies for production will pick up this year with the recovery in
palm oil exports should boost biodiesel production in 2017 and help blending reach a new record. However,
we believe biodiesel will provide modest support to palm oil consumption and therefore to palm prices in
2017 and beyond as there remain major hurdles to reaching higher blending rates in both countries.

Slightly Stronger Demand In 2017

Select Countries - Palm Oil Consumption (% chg y-o-y) (LHC) & Imports ('000 tonnes) (RHC)
e/f = BMI estimate/forecast. Source: MPOB, USDA, Sea of India, China Customs, BMI
Looking at palm oil consumption in importing countries in the coming years, we believe the bright spot for
consumption will remain India for the time being and the country will become an increasingly important
driver of palm oil prices given the lacklustre growth we forecast in other key import markets. Strong
economic growth and a tight domestic oilseed supply will keep palm oil imports on an uptrend in India.
In contrast, the outlook for palm oil consumption in China and the EU is subdued. In China, it will be due to
the ongoing diversification of edible oil consumption among consumers and the growth in the local oilseed
crushing sector which encourages imports of raw soybean at the expense of refined palm oil imports. In the
EU, the ongoing slowdown in the use of palm oil will continue in the coming years as the commodity will
increasingly suffer from a poor sustainability reputation and from the ensuing stricter regulations on
consumption put in place by authorities. Food use will come under rising pressure, while ongoing reform to
the EU's renewable policy will cap the use of palm oil-based biodiesel in the region, which was one of the
main drivers behind the strong expansion of palm oil consumption in recent years.
Risks To Price Outlook

We see upside risks to our price forecast in 2017 and 2018 coming from a potential higher-than-expected
rise in soybean and crude oil prices in 2017. We are already positive on these two, but should prices
overshoot our view, palm oil would also rise above our expectations due to substitution effects.
Table: BMI Palm Oil Price, Production Balance & Stocks Forecasts
2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Palm Oil Price, MYR/tonne, ave 2,405 2,396 2,235 2,630 2,600 2,580 2,620 2,660 2,700
Palm Oil Production, mn tonnes 56.4 59.3 61.8 58.8 64.7 67.9 70.7 73.7 76.8
Palm Oil Consumption, mn tonnes 55.8 57.6 58.7 59.8 62.8 65.4 68.1 70.8 73.8
Palm Oil Stocks-to-Use, % 16.2 16.4 17.0 13.3 13.2 13.9 14.7 15.5 16.2
Palm Oil Production Balance, mn tonnes 0.6 1.7 3.1 -1.0 2.0 2.5 2.6 2.9 2.9
e/f = BMI estimate/forecast. Source: National sources, BMI

Palm Oil Consumption Outlook

Growing Obstacles For Palm Oil In Europe Despite Sustainability Efforts
BMI View: The ongoing slowdown in the EU's use of palm oil will continue in the coming years as the
commodity will increasingly suffer from a poor reputation and from the ensuing stricter regulations put in
place by authorities. Food use will come under rising pressure, while ongoing reform to the EU's renewable
policy will cap the use of palm oil-based biodiesel in the region, which was one of the main drivers behind
the strong expansion of palm oil consumption in recent years.
After a decade of spectacular growth in palm oil consumption in the EU in the 2000s, demand has been
stagnating since 2014 and we forecast this trend to continue throughout our forecast period to 2021. The
two main growth drivers for palm oil consumption - namely the expansion of palm oil in food
manufacturing and the growth of biodiesel consumption in the region - are coming under growing pressure
which suggests that palm oil will face an uphill battle to defend its market share in this increasingly
demanding market. We forecast the EU's palm oil consumption to decline by 0.3% on average annually
between 2017 and 2021 to reach 6.5mn tonnes, compared with the 5.2% annual growth rate recorded over
the past 10 years.

Stagnant Demand Ahead

EU - Palm Oil Consumption ('000 tonnes)
7,500
5,000
2,500
-2,500
2019f
2020f
2021f
2013
2014
2015
2016
2017f
2018f
2007
2008
2009
2010
2011
2012
2000
2001
2002
2003
2004
2005
2006
Industrial Consumption Food Use Total consumption
f = BMI forecasts. Source: USDA, Fediol, BMI
Food: Palm Oil Consumption On The Decline
Palm oil demand for food manufacturing has been on the decline over recent years amid rising public
controversies around its poor sustainability performance and increasing consumer awareness on its
widespread use in food products. We believe the focus on sustainability among consumers and food
manufacturers is going to gain momentum in Europe looking forwards, which will constrain strong palm oil
consumption in the region. Private companies in northern Europe and France agreed in 2016 to ensure a
fully sustainable palm oil supply in Europe by 2020.
Controversies around the palm oil plantation sector are now multi-dimensional - spanning from hazes linked
to forest fires, continued links to deforestation, peat clearance, workers' rights abuse and community
conflicts - suggesting a long road ahead in terms of improving its sustainability and global reputation.
To be sure, palm oil's clear price competitiveness relative to other vegetable oil, its unique physical
characteristics and non-GM content means palm oil consumption in the EU will not collapse, as the

replacement of palm oil in food preparations will be somewhat limited. However, palm oil will struggle to
maintain its current market share among vegetable oil use for food of around 27%.
Italy's Confectionery Sector Key To Palm Oil Suppliers

Select Countries - Palm Oil Consumption ('000 tonnes)
2,000
1,500
1,000
500
0
2010 2011 2012 2013 2014 2015
Germany Belgium Spain France Italy Netherlands
UK Poland
Source: Fediol, BMI
Some companies, mainly led by Malaysian producers, have taken steps in order to improve their
environmental record, by strictly adhering to and implementing the Roundtable on Sustainable Palm Oil
(RSPO) and other certification standards. Respecting sustainability standards in palm oil production is
shifting from being a niche to a mainstream strategy and food manufacturers are increasingly using it as a
competitive tool. The RSPO is quickly turning into a basic requirement for entry into the European market.
As such, large producers are looking at the next step in terms of certification and practices, aiming for a full
deforestation policy or to be certified under the Rainforest Alliance, for example.
However, in spite of the efforts of both palm oil suppliers and buyers to be certified RSPO members over
recent years, palm oil still suffers from a negative perception among consumers. Palm oil will remain a
controversial commodity for European consumers and its reputation will most likely suffer further blows in
the future amid negative NGO campaigns and the potential implementation of laws limiting and taxing the
use of palm oil by governments.

Palm Oil's Market Share At Risk For Food Use, Stagnant For Industrial Use
EU Vegetable Oil Consumption By Type - For Food Use (LHC) & Industrial Use (RHC), % total
Source: USDA, BMI
Biodiesel: Push For Advanced Biodiesel To Limit Palm Oil Demand
Palm oil demand for biodiesel will also be lacklustre looking forwards. The fast expansion of the EU's
biodiesel sector in the 2000s, driven by the introduction of support policies in 2003 and more especially
after the Renewable Energy Directive (RED) policy came into force in 2009, was the main factor behind the
boom in palm oil use and imports over the period, as food use grew at a more modest pace (see chart
above).
Looking ahead, biodiesel consumption in the EU will not expand drastically as regulators are focusing on
the adoption of unconventional biofuels with lower greenhouse gases (GHG) emissions and not at
increasing the compulsory blending mandates. Moreover, weak economic growth in the region in the
coming years will constrain overall fuel use growth and therefore biodiesel demand. Our Oil and Gas team
forecasts the EU's refined products consumption growth including gasoline and kerosene to remain on its
long-term trend decline in the coming years, decreasing by 0.2% on average over the 2017-2021 period.

Lacklustre Biodiesel Consumption Outlook

EU - Biodiesel Production & Consumption (mn litres) (LHC) & Production By Feedstock (% of total) (RHC)
Note: f = OECD FAO, USDA forecasts. Source: OECD FAO, USDA, BMI
The EU's regulations are moving away from food crop-based biofuels, which will accelerate the use of
recycled vegetable oils as biodiesel feedstock in the coming years and be detrimental to absolute palm oil
demand in the coming years. The 2015 revision of the RED imposed a 7% cap on the contribution of food
crop-based biofuels to the 10% target for renewable energy in transport by 2020, leaving 3% to be covered
by non-food, crop-based biofuels. It also introduced the system of double counting of the energy
contribution of advanced biofuels towards the 10% blending target for 2020, which means countries need to
blend less volumes of biodiesel to reach the objectives set by regulators. The next RED (RED II
2021-2030), which is currently being prepared by European institutions, is likely to gradually lower the cap
on food crop-based biofuels from 7% in 2020 to 3.8% by 2030, as proposed by a draft submitted for
approval by the Commission.
However, the EU's policy is creating new opportunities for the palm oil sector, as the region is also likely
to promote the development of advanced biofuel production and use in the coming years, which will boost
demand for recycled palm oil and palm oil waste products, including mill effluent and empty palm fruit
bunches. So far, incentives to encourage second generation biodiesel, such as the production of
hydrogenated vegetable oils (HVO), have been successful and output is picking up fast.

Ongoing Supplier Diversification

Netherlands - Palm Oil Imports By Country (% total value imported)
110
100
90
80
70
60
50
40
30
20
10
0
2013
2014
2015
2016
2007
2008
2009
2010
2011
2012
Indonesia Malaysia Colombia Guatemala

Papua New Guinea Honduras Others
Note: Netherlands is the largest importer of palm oil within the EU and re-exports to member countries. Source: Trade Map, BMI
Table: European Union Palm Oil Consumption (2009-2021)
Indicator 2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f
Palm oil
consumption, 5,240. 5,220. 4,900. 5,520. 6,800. 6,700. 6,900. 6,600. 6,567. 6,553. 6,540. 6,527. 6,514.
'000 tonnes 0 0 0 0 0 0 0 0 0 9 8 7 6
Palm oil
consumption, 10.3 -0.4 -6.1 12.7 23.2 -1.5 3.0 -4.3 -0.5 -0.2 -0.2 -0.2 -0.2
% y-o-y
Palm oil
consumption, 11.9 11.8 11.1 12.4 15.3 15.0 15.4 14.7 14.6 14.6 14.5 14.4 14.4
kg per capita
e/f = BMI estimate/forecast. Source: USDA, Fediol, BMI

Palm Oil Biodiesel: Positive Outlook In 2017 But Uncertainty Beyond
BMI View: The outlook for biodiesel production is positive in 2017 for Indonesia and Malaysia, as palm oil
prices will decrease, boosting the competitiveness of the biofuel relative to fossil fuels. The successful
implementation of the 2015 levy programme in Indonesia will help the country maintain its head start in the
sector. Both countries maintain ambitious blending targets in the long term, but we continue to believe
biodiesel production will provide modest support to palm oil consumption and therefore to palm prices in
2017 and beyond.
Both Indonesia and Malaysia remain committed to pursuing their ambitious biodiesel mandates in spite
of currently low oil prices, which continue to hurt the attractiveness of biodiesel use and keep the sector
heavily reliant on public support. In Indonesia, the government has kept an aggressive policy to support
biodiesel production over recent years - it raised the compulsory blending mandate to 15% in 2015 and
started, in Q416, to enforce a voluntary B20 mandate more strictly. Malaysia is struggling to keep up with
Indonesia's pace in terms of biodiesel production and use growth, but the government remains committed to
implementing the long-awaited B10 mandate in 2017 despite the delays and difficulties it is facing. The
mandates serve two purposes - lower gasoil demand, and therefore lower reliance on imports; and support
for the palm oil sector, which has been struggling amid weaker global demand fundamentals and prices.

Palm Oil At A Steep Premium Over Brent Oil

Three-Month MDE Palm Oil & Front-Month ICE Brent Oil - Price Difference (USD/tonne, LHS) & Price Ratio (RHS)
Note: An increase in the ratio suggest palm oil prices outperforming crude oil prices, meaning that palm oil based biodiesel becomes less
attractive. Source: Bloomberg, BMI
Indonesia's Biodiesel Success, As Malaysia Lags Behind
Biodiesel production and blending rates have been helped by the implementation of the mandates,
especially in the case of Indonesia. After struggling to make biodiesel production competitive over the
2011-2015 period (see chart below), the successful implementation of a new subsidy system and the
Indonesia's Estates Crop Fund in 2015-2016 is helping output, and blending rates made a turnaround.
Biodiesel production rebounded under the new programme, and Indonesia's blend rate approached 8% in
2016.
The programme is being funded through an export levy on palm oil exports (USD50/tonne for crude palm
oil and USD30/tonne for processed products), which is primarily used to subsidise the difference between
biodiesel and fossil fuels. The levy funds are also used to fund replanting activities, primarily for small
holders. Indonesia's new levy is providing a regular and self-financing funding stream that will maintain
biodiesel's competitiveness and will keep the mandate afloat despite low oil prices. In fact, the funds

collected will pick up in 2017, as palm oil exports will recover this year after the negative impact of El Niño
on palm output and exports in 2016. This should boost biodiesel production in 2017 and help blending reach
a new record.
Struggling To Reach Blending Targets

Indonesia & Malaysia - Biodiesel Blending Mandates & Actual Blending Rate (%)
e = expected blended target by authorities. Source: USDA, BMI
Malaysian biodiesel producers do not benefit from the level of support and subsidies Indonesian players
enjoy, and opposition to higher mandates by the local auto manufacturing sector means the implementation
of the B10 mandate has been delayed since 2015 and that biodiesel production is growing at a much slower
pace than in Indonesia.

Biodiesel Providing Little Support To The Sector

Indonesia (LHC) & Malaysia (RHC) - Palm Oil Use by Type (mn tonnes)
Source: USDA, BMI
Modest But Growing Impact On Palm Oil Prices
We continue to believe biodiesel production in Indonesia and Malaysia will provide modest support to palm
oil consumption and therefore to prices in 2017 and beyond. The mandates are creating a floor for prices as
they have created demand at a time when the global palm oil consumption outlook is not as rosy as in the
past (see 'Palm Oil: Prices Will Ease In 2017 As Market Loosens', January 10). However, we do not believe
biodiesel production will provide a boost to prices in 2017 and 2018. Malaysia's sector will continue to
struggle, and volumes produced in Indonesia - although on an uptrend - still account for only 7.0% of the
country's palm oil consumption and exports. In the medium-to-long term, palm oil diverted to the biodiesel
sector will continue to rise, provided both countries implement (Malaysia) or keep in place (Indonesia)
supportive policies. However, there is a long road ahead to fully reach blending targets, and we believe
biodiesel programmes will provide limited support to global prices looking ahead.

Biodiesel As A Modest Support To Palm Oil Consumption

Select Countries - Palm Oil Consumption (% chg y-o-y)
18
15
12
-3
Av 2001-2010 Av 2011-2016e Av 2017f-2021f
Global Indonesia Malaysia India China EU
e/f = BMI estimate/forecast. 2011 is when Indonesia started accelerating its biodiesel programme. USDA, Local Sources, BMI
There remain major hurdles to reaching higher blending rates. Production remains heavily reliant on
subsidies, and are consequently reliant on the price difference between palm oil and fossil fuel; the fiscal
capacity of the authorities; or, in the case of the Indonesian levy system, on the level of palm oil exports.
2017 exports will recover with production, but we forecast subdued growth in shipments beyond, which
implies a small rise in funds allocated to biodiesel production and therefore in procurement volumes for
local blending. Other constraints to biodiesel adoption include distribution and logistical issues, namely
the high cost of inter-island shipping; engine warranty from manufacturers; and the lack of supporting
infrastructure such as facilities to blend and store biodiesel blending. The issue of mandate enforcement is
also a clear limit given the size of the two countries.

Clear Overcapicity In The Biodiesel Sector

Malaysia - Utilisation Rates Of Palm Oil Capacity (%)
100
75
50
25
0
2012 2013 2014 2015 2016
FFB Mills Refineries Oleochemicals Biodiesel
Source: MPOB, USDA, BMI
Overcapacity Is Limiting Investment In The Sector
A more supportive policy environment in Indonesia has been fuelling investment in the biodiesel sector in
the country. Biodiesel production capacity is growing as the number of refineries grows, and capacity was
estimated at around 7bn litres/year in 2016, compared with a stable 3bn litres capacity in Malaysia. On the
contrary, Malaysia's biodiesel sector is seeing profitability issues and overcapacity, as utilisation rates for
biodiesel facilities is the lowest among the palm-related activities. The government froze the issuances of
new licenses for biofuel processing plants in 2006, and the number of refineries ever since has been stable
ever since.

Robust Palm Oil Demand In Africa And The Middle East Ahead
BMI View: Palm oil consumption in Africa and the Middle East will accelerate in the coming years and
expand by a healthy growth rate. We are particularly positive on consumption in East and West African
countries and believe Middle Eastern countries will show slightly more modest growth. South Africa will be
the underperformer in terms of consumption growth.
Palm oil consumption in Africa and the Middle East will accelerate in the coming years and expand by a
healthy growth rate. This will be driven by varying factors depending on the countries, including
demographics, economic growth and rising income levels, the rise in food manufacturing as well as the
ongoing consuming habit evolution towards western style snacks and processed food. However, there will
be some disparities in terms of growth across countries. We are particularly positive on consumption in East
and West African countries. Middle Eastern countries will show slightly more modest growth. South Africa
will be the underperformer in terms of consumption growth.
Expansion Across The Board Except In the EU

Select Countries - Palm Oil Consumption Per Capita (kg/year)
e/f = BMI estimate/forecast. Source: FAO, USDA, BMI
Sub-Saharan Africa: Direct Cooking Oil Still Driving The Market

Within Africa and the Middle East, East and West African countries will be the outperformers in terms of
palm oil consumption. Palm oil already dominates the vegetable oil market, due to its availability - West
African countries produce a significant volume of palm oil - and especially its affordability.
In West Africa, palm oil is already a staple, used widely to cook traditional dishes. As a result,
consumption per capita is quite elevated by international standards relative to their GDP per capita levels.
Looking forward, palm oil consumption in West Africa will continue to expand, driven by robust
demographic trends - population in the African countries for which we forecast palm oil consumption will
expand by about 2% annually over the next 15 years, with the stark exception of South Africa - and rising
income levels, in particular in Côte d'Ivoire and Ghana. Palm oil consumption via processed food use will
slowly emerge in the coming years, but is starting from a relatively low base in West Africa. We forecast
Cameroon, Ghana and Côte d'Ivoire's palm oil consumption to grow by around 5-7% annually over the
2017-2021 period.
Stable Market Shares

Select Countries - Vegetable Oil Consumption By Type (% volume consumed)
Note: 'Av 05-10' = Average share between 2005 and 2010. 'Av 11-16' = Average share between 2011 and 2016. Source: USDA, FAO,
BMI

Robust demand growth will keep imports on the rise in West Africa, despite the sub-region producing fairly
large volumes of palm oil. This is because palm oil production in the region is undermined by sub-optimal
growing conditions, operating risks and hurdles, lower productivity and elevated costs of production and, in
general, low international palm oil prices (see 'Africa Palm Oil: No Game Changer For Global Production',
August 4 2015). Even Côte d'Ivoire, which is one of the only African countries currently producing a
surplus, saw its exports peak in 2013-2014.
Consumption growth will also be robust in East Africa. Unlike in West Africa, consumption per capita in
Ethiopia and Kenya is low as palm oil is not as important in the daily cooking habits. However, the rise in
food manufacturing in the region, particularly in Ethiopia, will keep palm oil use on the rise. In Ethiopia for
example, Wilmar International and a local partner formed a joint venture and built a large house and
personal care product and food manufacturing center in 2015 that aims to export to the region. Ethiopia is,
in fact, one of our top picks in terms of economic outperformance over the coming years (see our Country
Risk coverage 'Ethiopia Will Remain A Regional Outperformer', November 28 2016).
Palm oil consumption will be slower in South Africa than in the rest of the continent, due to slower
economic and demographic growth as well as competition from other vegetable oils. Food manufacturing is
dynamic in the country and will be the main driver behind palm oil demand growth in the coming years.
Food Sales Will Support Palm Oil Demand

Select Countries - Confectionery (LHC) & Oils, Fats (RHC) Sales, Average % Growth 2017-2021 In Local Currency
Terms
Note: Confectionery refers to chocolate, sweets and similar products. Source: BMI

Middle East: Food Manufacturing Sector Will Drive Palm Oil Demand
Palm oil consumption growth in North Africa and the Middle East will be more moderate than in Sub-
Saharan Africa and will mainly come from the expansion of the food manufacturing sector and changing
consumption habits. Palm oil consumption in the Middle East differs from West Africa, as it is rarely used
for home cooking, especially liquid palm cooking oil. Blended edible oil including palm oil is making
progress in countries like Egypt and Turkey due its price competitiveness, at a time of rising economic
challenges. In Egypt in particular, the government subsidises and encourages the consumption of blended
edible oil, which will help palm oil gain limited market share in the coming years.
Africa And Middle East Are Still Small Markets

Palm Oil - Consumption By Country (mn tonnes)
e/f = BMI estimates/forecasts. Source: FAO, USDA, BMI
For now, however, most of the palm oil consumed in North Africa and the Middle East will be via food
manufacturing and prepared food consumption. The region's food manufacturing is growing and some
countries including Egypt and Saudi Arabia export food preparation to their neighbours, which will
indirectly boost palm oil demand as a food ingredient. Meanwhile, the large young population is showing
appetite for more western style snacks and processed foods including confectionery and bakery products.

Table: Select Countries - Palm Oil Consumption Forecasts (2013-2021f)
Geogra Indicator 2013 2014 2015e 2016e 2017f 2018f 2019f 2020f 2021f
phy
Palm oil
Camero consumpti 370.0 360.0 320.0 330.0 340.0 367.2 395.5 425.9 458.7
on on, '000
tonnes
Palm oil
Camero consumpti 16.7 15.8 13.7 13.8 13.9 14.6 15.4 16.2 17.0
on on, kg per
capita
Palm oil
Cote consumpti 220.0 235.0 250.0 255.0 270.3 286.5 303.7 321.9 341.2
d`Ivoire on, '000
tonnes
Palm oil
Cote consumpti 10.2 10.6 11.0 11.0 11.3 11.7 12.2 12.6 13.0
d`Ivoire on, kg per
capita
Palm oil
consumpti 1,180.0
Egypt 1,200.0 1,310.0 1,315.0 1,400.5 1,484.5 1,573.6 1,699.5 1,860.9
on, '000
tonnes
Palm oil
consumpti 13.5
Egypt 13.4 14.3 14.1 14.7 15.3 15.9 16.9 18.2
on, kg per
capita
Palm oil
Ethiopia consumpti 330.0 360.0 420.0 450.0 479.3 510.4 542.6 576.7 613.1
on, '000
tonnes
Palm oil
Ethiopia consumpti
on, kg per 3.5 3.7 4.2 4.4 4.6 4.8 5.0 5.2 5.4
capita
Palm oil
consumpti 700.0
Ghana 704.0 708.0 670.0 710.2 745.7 780.0 815.9 853.4
on, '000
tonnes
Palm oil
consumpti 26.8
Ghana 26.3 25.8 23.9 24.8 25.5 26.1 26.7 27.4
on, kg per
capita
Palm oil
consumpti 490.0
Kenya 540.0 560.0 600.0 630.0 663.4 698.5 735.6 774.6
on, '000
tonnes
Palm oil
consumpti 11.2
Kenya 12.0 12.2 12.7 13.0 13.3 13.7 14.1 14.5
on, kg per
capita
Palm oil
consumpti 1,400.0
Nigeria 1,450.0 1,499.3 1,544.3 1,599.9 1,659.1 1,722.1 1,789.3 1,860.8
on, '000
tonnes

Select Countries - Palm Oil Consumption Forecasts (2013-2021f) - Continued
Geogra Indicator 2013 2014 2015e 2016e 2017f 2018f 2019f 2020f 2021f
phy
Palm oil
consumpti 8.1
Nigeria 8.2 8.2 8.3 8.3 8.4 8.5 8.7 8.8
on, kg per
capita
Palm oil
South consumpti 390.0 450.0 410.0 445.0 458.4 469.4 481.1 493.1 505.4
Africa on, '000
tonnes
Palm oil
South consumpti 7.3 8.3 7.5 8.1 8.3 8.4 8.5 8.7 8.9
Africa on, kg per
capita
Palm oil
consumpti 650.0
Russia 770.0 800.0 834.4 869.4 905.1 941.3 978.0 1,015.2
on, '000
tonnes
Palm oil
consumpti 4.5
Russia 5.4 5.6 5.8 6.1 6.3 6.6 6.8 7.1
on, kg per
capita
Palm oil
consumpti 510.0
Turkey 550.0 555.0 600.0 624.0 649.0 674.9 701.9 730.0
on, '000
tonnes
Palm oil
consumpti 6.7
Turkey 7.1 7.1 7.5 7.8 8.0 8.3 8.5 8.8
on, kg per
capita
Palm oil
consumpti 800.0
Iran 650.0 400.0 450.0 482.0 517.1 555.9 597.6 642.4
on, '000
tonnes
Palm oil
consumpti 10.4
Iran 8.3 5.1 5.6 6.0 6.3 6.7 7.2 7.6
on, kg per
capita
Palm oil
Saudi consumpti 285.0 330.0 380.0 335.0 355.0 367.4 382.1 397.4 413.3
Arabia on, '000
tonnes
Palm oil
Saudi consumpti 9,436,75 10,684,26 12,048,05 10,417,32 10,842,12 11,033,80 11,292,41 11,563,87 11,848,17
Arabia on, kg per 7.7 4.0 0.7 2.9 3.3 5.3 2.7 4.3 1.8
capita
e/f = BMI estimate/forecast. Source: USDA, FAO, BMI

Palm Oil Companies: The Four Key Themes

Palm Oil Companies: Persisting Challenges & Strategy Shifts
BMI View: The improvement in palm oil companies' earnings that started in 2016 with the temporary rise
in palm oil prices will persist into 2017, driven by the rebound in palm production following El Niño.
However, production and prices fundamentals for the sector have been deteriorating over recent years and
the operating environment will remain challenging, forcing companies to focus on efficiency gains and
investment towards higher-value downstream products, as well as on improving their sustainability record.
Improved Earnings To Persist In FY17, But Pressures Beyond
In line with our view, palm oil companies recorded a pick-up in earnings and profitability in 2016 after a
very challenging year in 2015. Earnings were helped by the rebound in palm oil prices driven by the
negative impact of El Niño on production. However, the improvement for palm oil companies was only
moderate, and FY16 earnings did not exceed the levels recorded over FY12-FY14 as higher prices were
partially offset by lower palm output and rising costs.
We believe the improvement in earnings will persist into 2017, as the rebound in palm oil production that
we forecast this year will balance easing palm oil prices. Upstream revenue (plantations) will therefore
remain supported, while the downstream sector (refineries and oleochemicals) will benefit from lower input
prices after a challenging year in 2016.
As such, El Niño and its impact on output and production provided companies a temporary reprieve from
the trend of declining profitability and slowing growth recorded over recent years. However, fundamentals
for the sector have been deteriorating and the operating environment will remain challenging for palm oil
companies in the coming years. The sector saw strong production and earnings growth over the 2000s until
2012-2013, but expansion is slowing down as challenges are mounting.
Fundamentals for production and prices are not as enticing as in the past. Although palm oil prices could
receive a temporary boost from weather-related global oilseed production disruption, we believe ample
global supply for oilseeds and palm under normal weather conditions mean palm oil prices will remain
subdued on a five-year horizon.

Rebound In Production To Offset Lower Prices In 2017

Three-Month MDE Palm Oil Prices (LHC) & Palm Oil Production, % chg y-o-y (RHC)
f = BMI forecast. Source: Bloomberg, BMI
Mounting Challenges In The Sector
The growing hurdles to plantation expansion - for example, stricter environmental laws against
deforestation, a general move towards sustainability, lack of available land in these dense countries - mean
mature area growth in both Malaysia and Indonesia is slowing down at a fast pace. These challenges have
started to feed through companies' strategies (see below).
Fresh fruit bunch (FFB) production and milling yields have been stagnating for years as most
producers have been focusing on investing in new plantations instead of on efficiency improvement.
Production costs continue to rise at a fast pace, amidst steadily rising minimum wages and tighter
immigration laws (Malaysia) - which is particularly debilitating for labour-intensive plantation operations.
Mechanisation is still very low in the sector, mainly due to the lack of adequate machines suitable for palm
plantation work (see 'Asia Machinery Outlook', February 22). In particular, a lot needs to be done regarding
mechanical harvesting, the collection of fresh fruit bunches, infield transportation and crop care.

Positive Trend For Now, Renewed Challenges Ahead

Palm Oil Companies - Revenue Growth, % chg y-o-y & Operating Margins, %
Note: See tables at the bottom for the list of companies included. X-axis represents calendar year (financial results have been moved for
IOI Corp, Sime Darby and KLK to match calendar year). Source: Company reports, BMI
Regarding consumption, palm oil exporters have to confront slowing import demand, especially from
the EU and from China. China is favouring imports of soybean over vegetable oils (both soy and palm oil),
due to its very large crushing capacity. The country is also diversifying its vegetable oil consumption, which
will come at the expense of palm oil.
Meanwhile in the EU, the ongoing slowdown in the use of palm oil will continue in the coming years as the
commodity will increasingly suffer from a poor reputation and from the ensuing stricter regulations put in
place by authorities. Food use will come under rising pressure, while ongoing reform to the EU's renewable
policy will cap the use of palm oil-based biodiesel in the region, which has been one of the main drivers
behind the strong expansion of palm oil consumption in recent years (see 'Growing Obstacles For Palm Oil
In Europe Despite Sustainability Efforts', May 4).
As such, in terms of demand, the palm oil sector is increasingly dependent on Indian import demand, which
will continue to vary in the coming years in line with the volatile impact of the weather on domestic oilseed
production.

Company Strategy In 2017: Efficiency And Oleochemicals
Palm oil companies have taken the measure of the challenges facing the sector, and have acknowledged that
the strong growth in revenue and elevated margins recorded over recent years will be difficult to replicate
without a change in strategy. Most palm oil companies started adjusting their strategy in 2015, cutting on
overall investment and focusing on much-needed efficiency gains. Palm oil companies, which recorded
steady capital expenditure (capex) growth until 2014, have been cutting down on investment since 2015 and
will broadly keep capex on a downtrend in 2017.
Focus On Yields Will Be Key For Future Growth

Palm Oil Harvested Area (% chg y-o-y) (LHC); Top 11 Palm Oil Companies FFB Yield (tonne/mature ha) & Oil
Extraction Rate (%) (RHC)
Note: List of companies in the tables at the bottom. Source: USDA, MPOB, Company Reports, BMI
1. Focus on efficiency gains. The vast majority of palm oil companies are currently focusing on efficiency
gains, especially in the upstream segment, switching from a strategy of aggressive plantation expansion
over the 2005-2014 period. As companies targeted investment at setting up new plantations instead of
improving efficiency, yields at the plantation and mill levels stagnated. The move towards efficiency,
initiated in 2014, started bearing fruit at milling facilities in 2015, but tree yields remain weak, even barring
the dramatic impact of El Niño on yields in 2016 (see chart below). The improvement of yields is
necessary, as the land available to expand plantations is shrinking and margins are on the decline. Looking
ahead, companies will continue to pursue efficiency gains via cost control; research and development in
agronomy practices; improvement in irrigation systems; growing use of automation and machinery; and cost

cutting. Some companies have also mentioned the use of technology (data analytics, precision agriculture,
drones) to improve yields, particularly Sime Darby.
2. More cautious plantation strategy & plantation consolidation. Companies are adopting a more
conservative land acquisition and development strategy. Large companies are now focusing on brownfield
investment, acquiring small estates in Indonesia - as greenfield development (usually located in forest or
peat lands) is becoming risky from a reputation perspective, with an increasing demand for accountability
regarding sustainability and with stricter environmental laws on land-clearing methods and deforestation.
This will lead to a consolidation in the palm oil plantation sector. Regarding land development abroad,
Papua New Guinea is likely to remain an attractive investment destination; however, palm oil producers
have become much more wary of acquiring land in Africa as the first companies to develop land in the
continent have faced difficulties and delays.
Oleochemicals Remain The Bright Spot

Malaysia - Utilisation Rate Of Select Palm Oil Capacity, %
100
75
50
25
0
2012 2013 2014 2015 2016 Q117
FFB Mills Refineries Oleochemicals Biodiesel
Source: MPOB, USDA, BMI
3. Oleochemical rush. Some refiners are looking further up the value chain and are developing their
oleochemical and speciality oils capacity, as the segment commands higher utilisation rates, prices and
margins. In 2016, the oleochemical sector faced a more challenging environment amid higher input prices

(palm oil and kernel) and rising competition. Indeed, capacity has been growing in Indonesia over recent
years, leading to higher competition for the more established Malaysian players.
Wilmar International is one of the most established players, while IOI Corp, Kuala Lumpur
Kepong and more recently Felda Global Ventures have also been boosting their oleochemical capacity via
the construction of new facilities and the acquisition of established European producers. These players plan
on remaining focused on oleochemicals in 2017, moving towards the oleo-derivatives segment as the basic
oleochemical business is now crowded. In 2017, Sinar Mas (Golden Agri Resources) will expand its
oleochemical capacity with the opening of a new plant according to the ASEAN Oleochemical
Manufacturers Group. KL Kepong announced in 2016 that it is looking at expanding into oleo derivatives
and specialty oleochemical-related ventures via acquisitions in developed markets and China.
Ongoing Strong Push Towards Sustainability

Select Companies - Certified Sustainable Palm Oil Production By The RSPO, As Of Q117, % Of Company CPO
Production (LHC) & % Of Global CSPO Production (RHC)
Note: * Based on number of RSPO certified mills and not on production. ** Based on estimated CPO production. Before 2014: based on
the number of certified mills. *** Based on certified area vs total palm mature area. ^ suspended/withdrew from the RSPO. Source:
Company FY16 Annual Reports, RSPO, BMI
Sustainability Efforts To Determine Future Dominant Players
As sustainability topics are gaining momentum around the palm oil sector, we believe companies
integrating this issue into their operations will stand out as winners against other companies competing for

market share. They will benefit from a more stable revenue stream and will be able to compete in a larger
number of markets.
Respecting sustainability standards in palm oil production is shifting from being a niche strategy to a
mainstream one, and players along the palm oil supply chain - from palm producers to food manufacturers
and retailers - are increasingly using it as a competitive tool. Many palm oil companies, mainly led by
Malaysian producers, are making efforts to varying degrees to improve their environmental record, by
strictly adhering to and implementing the Roundtable on Sustainable Palm Oil (RSPO) and other
certification standards.
These certifications will have some impact on palm oil companies. On the upside, they can give producers
and traders commercial advantages in terms of market access, as global consumer manufacturing brands
will increasingly require certified sustainable palm oil. Although providing sustainable palm oil is a
prerequisite to accessing only the EU for now, a rise in consumers' craving for higher-quality products
will likely help expand the sustainability trend to include emerging markets in the long term.
However, these standards also present challenges for the sector. First, they will force plantations companies
to reassess their planting and acquisition strategy, especially regarding greenfield development in primary
forest or peat land. The amount of available landbank that can be developed is reduced when abiding by
stricter environmental laws, leaving companies with land that they cannot clear without facing reputational
risks. Moreover, there has been a multiplication of sustainability certification standards in recent years, from
both associations and government-linked bodies, which is damaging their efficacy. Finally, we expect
controversies around workers' labour rights to grow in intensity in the coming years, which will force palm
oil players to implement costlier production processes.
On the contrary, companies that do not comply with these stricter norms and internationally
recognised standards will face lower quality earnings in the coming years. For example, IOI Corp lost its
RSPO certification in April 2016 and recognised that its sales to Europe slewed down significantly towards
the end of the year as a consequence. The efforts deployed by IOI and Felda Globa Ventures - which
voluntarily withdrew from the RSPO in 2016 in order to address first labour and social issues in their
operations - to regain certification as soon as possible show the importance of these standards for market
access. In any case, controversies around the palm oil plantation sector are numerous and multi-
dimensional, spanning from forest fires-linked haze, continued links to deforestation and peat clearance, to
workers' rights abuse and community conflicts - suggesting a long road ahead in terms of improving its
sustainability and global reputation.

Table: Select Companies - Operational Highlights (As Of Q117, 2016 Annual Reports)
Palm
Oil
Refinin
8-19 >19 g Oleochemi
4-7 yrd Past Capaci cal Biodies
<4yrs yrs Prim Prim FFB Yield OE CPO ty ('000 capacity el
Planted Immatu Youn e e (tonne/ R Producti tonnes ('000 Capacit
Area (ha) re (%) g (%) (%) (%) mature ha) (%) on ) tonnes) y
20.
Felda Global* 341,190 22 21 14 43 14.5 7 2,664 5,170 545 350
21.
Sime Darby 629,000 16 15 40 29 18.8 9 2,442 4,000 1,000 90
22.
Golden Agri 488,252 5 9 43 44 19.0 2 2,016 4,680 240 300
20.
Wilmar 241,892 14 6 60 20 19.0 0 1,740 28,000 2,000 3,000
21.
Astra Agro** 297,011 13 36 51 21.7 6 1,550 900 0 0
21.
Indofood Agri 247,430 18 5 49 29 14.6 8 833 1,400 0 0
21.
IOI Corp 179,271 17 10 48 25 21.4 6 697 3,300 780 yes
22.
First Resources 208,691 24 26 26 24 16.8 5 635 850 0 yes
22.
Bumitama 175,243 16 82 2 14.6 7 701 na 0 yes
22.
KL Kepong^ 211,574 14 28 34 24 19.8 3 780 na 2,500 na
Genting 21.
Plantations 141,186 29 71 17.5 9 na 600 0 yes
na = not applicable. Note: * 2015 data for age profile and downstream production capacity; ** 2015 data except for
planted area and CPO production; ^ CPO production. BMI calculation based on mature area and CPO production mt/ha.
Oleochemical capacity is an estimate. Source: Company data, BMI
Table: Select Companies - Financial Highlights, FY16
Revenue
growth
FY12-
Net Basic FY16
Revenue Income Operating EPS Capex/R Net Debt/ (average
(USD Mn) (USD Mn) Margin (%) (USD) (%)* EBITDA % chg)
Wilmar 41,402 1,002.8 3.7 0.15 1.9 5.5 -1.4
Sime Darby 10,657 592.1 5.6 0.09 5.3 3.1 -4.3
Golden Agri 7,209 403.0 3.1 0.03 3.0 4.5 4.5
Felda Global 4,178 7.2 3.1 0.00 5.5 3.0 14.8

Select Companies - Financial Highlights, FY16 - Continued
Revenue
growth
FY12-
Net Basic FY16
Revenue Income Operating EPS Capex/R Net Debt/ (average
(USD Mn) (USD Mn) Margin (%) (USD) (%)* EBITDA % chg)
IOI Corp 2,845 152.6 13.6 0.02 4.0 2.6 -11.3
KLK 3,969 385.7 7.3 0.36 11.0 1.5 3.0
Indofood Agri 1,093 38.1 15.6 0.03 9.7 2.1 -4.9
Astra Agro 1,062 150.9 18.8 0.09 16.2 1.0 -1.6
First Resources 575 125.4 36.1 0.08 15.1 1.3 4.9
Bumitama 499 75.6 24.5 0.04 13.6 2.1 10.3
Genting Plantations 358 88.8 27.8 0.11 32.8 1.1 -2.5
TSH Resources 211 13.7 15.5 0.01 14.6 7.6 -9.2
Note: * Capex listed in absolute values as percentage of revenues. Source: Companies, BMI

Key Palm Oil Data

BMI Palm Oil Production & Consumption Forecasts
Palm Oil Production & Consumption Forecasts
Table: Palm Oil Production Forecast
2012 2013 2014 2015e 2016e 2017f 2018f 2019f 2020f 2021f
Palm oil
Cameroon production, 354.0 265.0 288.0 270.0 270.0 270.0 286.2 296.0 309.0 322.0
'000
tonnes
Palm oil
production,
Ghana 448.0 471.0 493.0 495.0 500.0 515.0 535.6 551.7 573.7 590.9
'000
tonnes
Palm oil
production,
Nigeria 865.0 895.0 930.0 950.0 978.5 1,017.6 1,068.5 1,111.3 1,166.8 1,213.5
'000
tonnes
Palm oil
production, 26,200. 28,480. 30,480. 32,980. 31,900. 34,898. 36,678. 38,714. 40,804. 43,008.1
Indonesia '000 0 0 0 0 0 6 4 1 6
tonnes
Palm oil
production, 18,202. 19,320. 20,160. 19,880. 17,690. 20,078. 20,921. 21,235. 21,553. 21,877.1
Malaysia '000 0 0 0 0 0 2 4 3 8
tonnes
Palm oil
production,
Thailand 1,892.0 2,000.0 2,100.0 2,173.5 2,249.6 2,328.3 2,409.8 2,494.1 2,581.4 2,671.8
'000
tonnes
Palm oil
production,
Colombia 974.0 1,041.0 1,111.4 1,274.0 1,312.2 1,443.4 1,573.4 1,715.0 1,869.3 2,037.5
'000
tonnes
Palm oil
production,
Ecuador 473.0 540.0 565.0 575.0 586.5 607.0 631.3 655.6 679.9 704.2
'000
tonnes
Palm oil
Guatemala production, 291.0 323.0 350.0 355.0 372.8 406.3 442.9 479.5 516.1 552.7
'000
tonnes
Palm oil
production,
Honduras 395.0 410.0 430.0 440.0 457.6 485.1 523.9 562.7 601.5 640.3
'000
tonnes
e/f = BMI estimate/forecast. Source: USDA, National Statistics, BMI

Table: Palm Oil Consumption Forecast
2012 2013 2014 2015e 2016e 2017f 2018f 2019f 2020f 2021f
Palm oil
Nigeria consumption, 1,350.0 1,400.0 1,450.0 1,499.3 1,544.3 1,599.9 1,659.1 1,722.1 1,789.3 1,860.8
'000 tonnes
Palm oil
Bangladesh consumption, 1,010.0 1,040.0 1,150.0 1,230.0 1,286.6 1,342.3 1,399.3 1,469.3 1,542.8 1,619.9
'000 tonnes
Palm oil
China consumption, 5,850.0 6,380.0 5,700.0 5,750.0 5,200.0 5,460.0 5,602.0 5,753.2 5,908.5 6,068.1
'000 tonnes
Palm oil
India consumption, 7,420.0 8,250.0 8,400.0 9,030.0 9,481.5 10,240.0 10,731.5 11,246.7 11,786.5 12,352.2
'000 tonnes
Palm oil
Indonesia consumption, 7,100.0 8,030.0 8,750.0 7,500.0 9,528.0 10,004.4 10,604.7 11,134.9 11,691.6 12,276.2
'000 tonnes
Palm oil
Malaysia consumption, 2,150.0 2,440.0 2,800.0 2,930.0 3,000.0 3,210.0 3,402.6 3,572.7 3,726.4 3,875.4
'000 tonnes
Palm oil
Pakistan consumption, 2,110.0 2,270.0 2,480.0 2,760.0 2,953.2 3,159.9 3,317.9 3,483.8 3,658.0 3,840.9
'000 tonnes
Palm oil
Thailand consumption, 1,563.0 1,600.0 1,656.0 1,725.6 1,796.3 1,873.5 1,957.8 2,049.9 2,150.3 2,260.0
'000 tonnes
Palm oil
Europe consumption, 5,520.0 6,800.0 6,700.0 6,900.0 6,600.0 6,567.0 6,553.9 6,540.8 6,527.7 6,514.6
(Region) '000 tonnes
Palm oil
United consumption, 1,067.1 1,092.7 1,140.7 1,193.2 1,240.9 1,282.9 1,318.5 1,347.0 1,367.9 1,380.9
States '000 tonnes
e/f = BMI estimate/forecast. Source: USDA, National Statistics, BMI. Note: Europe (region) = European Union data only.

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Global Palm Oil Sector:

Published by: BMI Research

Copy deadline: May 2017

BMI Research © 2017 Business Monitor International Ltd

Global Palm Oil Sector: Introduction ................................................................................. 7

Palm Oil Price Outlook ........................................................................................................ 9

Palm Oil Consumption Outlook ........................................................................................ 16

Palm Oil Companies: The Four Key Themes .................................................................. 34

Key Palm Oil Data .............................................................................................................. 43

© Business Monitor International Ltd Page 5

Global Palm Oil Sector: Introduction

Table: Global Palm Oil Market Value

© Business Monitor International Ltd Page 7

© Business Monitor International Ltd Page 8

Palm Oil Price Outlook

Table: BMI Palm Oil Price Forecasts

Current 2017 2018 2019 2020 2021

MYR/tonne, 2,621 2,600 2,580 2,620 2,660 2,700

Short-Term Outlook (three-to-six months)

© Business Monitor International Ltd Page 9

Declining Further In 2017 And 2018

Long-Term Outlook (six-to-24 months)

© Business Monitor International Ltd Page 10

Stocks Will Take Time To Rebuild

Source: Bloomberg, MPOB, BMI

Production To Rebound In 2016/17, But Slow Down In The Long Term

© Business Monitor International Ltd Page 11

2015/16 2016/17f Risks 2017/18f Risks

© Business Monitor International Ltd Page 12

Market Will Remain Dominated By Indonesia Despite Growth In Secondary Producers

f = BMI forecasts. Source: USDA, MPOB, GAPKI, BMI

Lacklustre Consumption Growth In The Coming Years

© Business Monitor International Ltd Page 13

Slightly Stronger Demand In 2017

Risks To Price Outlook

© Business Monitor International Ltd Page 14

2013 2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

e/f = BMI estimate/forecast. Source: National sources, BMI

© Business Monitor International Ltd Page 15

Palm Oil Consumption Outlook

© Business Monitor International Ltd Page 16

Stagnant Demand Ahead

Industrial Consumption Food Use Total consumption

f = BMI forecasts. Source: USDA, Fediol, BMI

Food: Palm Oil Consumption On The Decline

© Business Monitor International Ltd Page 17

Italy's Confectionery Sector Key To Palm Oil Suppliers

Source: Fediol, BMI

© Business Monitor International Ltd Page 18

Source: USDA, BMI

Biodiesel: Push For Advanced Biodiesel To Limit Palm Oil Demand

© Business Monitor International Ltd Page 19

Lacklustre Biodiesel Consumption Outlook

© Business Monitor International Ltd Page 20

Ongoing Supplier Diversification

Indonesia Malaysia Colombia Guatemala

Table: European Union Palm Oil Consumption (2009-2021)

e/f = BMI estimate/forecast. Source: USDA, Fediol, BMI

© Business Monitor International Ltd Page 21

Palm Oil Biodiesel: Positive Outlook In 2017 But Uncertainty Beyond

© Business Monitor International Ltd Page 22

Palm Oil At A Steep Premium Over Brent Oil