Oil Palm Service Indonesia and Brochure Can oil palm production continue to grow? In which regions?

A surge in production last year, saw record output in Indonesia. Yet Malaysian production in 2018 remained weak. What accounts for these differences? Will these trends continue?

Annual production growth by region in Indonesia LMC’s Oil Palm Service tracks this major and Malaysia, 2018 vs. 2017 commodity oil, by region, in both countries. Together, they produce nearly 90% of the world’s palm oil. Year on Year Output Growth The outcome is a clear view of the outlook 20 – 25 % for production, area, yields, trade, costs and 15 – 20 % many more key aspects of the sector. 10 – 15 % The service is widely considered as the 5 – 10 industry GoTo service. It answers crucial questions such as: 0 – 5

-5 – 0 • Will production continue to grow, and how fast?

• How will weather and disease affect yields across different growing regions in the months ahead?

• Will sustainability concerns curb demand and area expansion?

1 LMC’s Oil Palm Service – The most comprehensive oil palm service available

2 Regional coverage

The Oil Palm Service covers 11 producing regions in Indonesia and Malaysia:

Indonesia Malaysia 1. North Sumatra (including Aceh) 1. Peninsular Malaysia 2. Central Sumatra (Jambi, Riau) 2. Sabah 3. South Sumatra 3. Sarawak (including Bangka/Belitung, Bengkulu, and Lampung) 4. Central Kalimantan 5. East Kalimantan 6. West Kalimantan 7. South Kalimantan 8. All the other provinces (combining Sulawesi, Papua and Java)

3 Objectives

LMC’s Oil Palm Service provides a forward-looking view of the sector in both Indonesia and Malaysia. Among the core features are forecasts of production of FFB, CPO and PKO, by individual growing region. Over the last 20 years, LMC has worked with a great many of the major plantation companies, giving us unequalled insights into the industry which allow us to provide uniquely detailed data and analysis.

Crude palm oil yield, tonnes/ha Key metrics presented include: • CPO and PKO production forecasts up to 2 years 5.0 ahead, by quarter, taking into account: – Rainfall pattern, including El Niño or La Niña 4.5 – Evolving age profile of trees – Biological production cycle of the trees 4.0 – Growth in oil palm areas

3.5 – Planting/replanting rates – Yield developments, and underlying yield 3.0 growth

Crude palm oil yield (tonnes/ha) yield oil palm Crude • Outlook for downstream processing: refined oils, 2.5 oleochemicals and biodiesel.

2.0 2000 2003 2006 2009 2012 2015 2018 Indonesia Malaysia

All data shown is for illustrative purposes only, and does not contain actual figures.

4 Key influences on the palm oil sector

LMC’s output forecasts are supported by detailed analysis, covering the key factors which influence the sector:

Ownership structure CPO production costs and kernel credits Labour productivity/costs/ha

Rainfall data Export tax structure & subsidies Sustainability concerns

Exports of oil palm products The link between prices and new plantings Yields adjusted for age profile of tree

Indonesia biodiesel output for Indonesia export tax advantage Indonesia biodiesel capacity domestic use and export distribution 2,000 200 Others Medan 1,800 180 14% 14% 1,600 160 Kalimantan 1,400 140 5% 120 1,200 . Dumai 1,000 100 13% 800 80 600 60 400 40 Batam 200 20 Eas t Jav a 11% 12%

0 product US$/tonne advantage, Indonesian 0 2012 2013 2014 2015 2016 2017 2018 2019 West Java Lampung Domestic consumption Export 13% 12%

All data shown is for illustrative purposes only, and does not contain actual figures.

5 Reconciling conflicting datasets

Indonesia is the largest producer of palm oil, yet its official data on oil palm is imperfect and inconsistent.

In order to produce the coherent outcome presented in LMC Oil Palm Service, we have undertaken a painstaking process to evaluate and reconcile conflicting data on area, yields, extraction rates and production.

A good indication of area expansion is provided by the sale of germinated seeds. Over the course of many years, Indonesian geminated oil palm seed sales vs. we have analysed these data, using evidence from a wide Indonesia local CPO price range of sources, and cross-checking data with plantation companies. 200 1,000

The result is a consistent baseline dataset, unavailable Indonesian Indonesian CPO Price, in U$/tonne elsewhere, which provides a strong foundation for 160 800 LMC’s output forecasts.

120 600

80 400

Salles of Germinated seeds, in millions in seeds, Germinated of Salles 40 200

0 0

Seed sales CPO Prices

6 What you get

Subscribers get three deliverables:

1. Forecast Report - production forecasts and market updates each quarter

A concise quarterly report presents LMC’s latest forecasts and discussion of the main market developments.

2. Rainfall Data - updates each quarter

LMC compiles and aggregates rainfall data by region from a selection of companies. These are updated quarterly as part of the forecasting process and are provided to subscribers.

3. Reference Report (with key data updated each quarter)

A detailed report with 80 pages of data and in-depth analysis covering developments in the previous quarter, age profiles & yields, and factors which affect output and downstream developments.

*****

Clients also get full access to LMC’s global presentations on the oils and oilseeds sector.

7 Scope and coverage

8 Outlook in a nutshell – CPO and PKO

LMC’s latest forecasts of CPO and PKO output on a quarterly basis, by individual region, for both countries.

3 201220132014201520162017201820192020 Q1 CPO output - Peninsular Peninsular Q1 1,974 2,170 2,197 2,000 1,796 2,069 2,397 2,512 2,633 Q2 2,313 2,274 2,510 2,869 2,147 3 2,445 2,296 2,471 2,635 Q3 3,066 2,965 3,014 3,159 2,484 2,937 2,588 2,899 3,161 Q4 2,967 2,918 2,451 2,509 2,459 3,125 2,919 3,001 2,965 Total 10,320 10,328 10,172 10,536 8,8872 10,576 10,200 10,884 11,394 Sabah - Q1 1,151 1,434 1,372 1,133 919 1,057 1,280 1,295 1,272 Q2 1,175 1,251 1,493 1,496 1,216 1,319 1,151 1,278 1,356 Q3 1,444 1,427 1,557 1,551 1,432 2 1,329 1,173 1,288 1,388 Q4 1,770 1,665 1,633 1,543 1,280 1,511 1,514 1,496 1,464 Total 5,540 5,776 6,056 5,723 4,847 5,215 5,117 5,358 5,480 Sarawak 1 Q1 563 620 712 645 677 874 827 1,019 1,245

Q2 639 643 779 903 Q1 CPO Output ('000 tonnes) 835 953 970 953 926 Q3 849 931 1,023 1,116 1,086 1,151 1,216 1,177 1,104 Q4 871 919 924 1,039 1 987 1,150 1,179 1,164 1,114 Total 2,921 3,112 3,439 3,703 3,585 4,128 4,192 4,313 4,390 Malaysia Q1 3,688 4,224 4,282 3,777 3,392 4,000 4,503 4,826 5,150 0 Q2 4,127 4,168 4,783 5,268 4,198 2012 4,717 2013 2014 4,416 2015 4,702 2016 4,917 2017 2018 2019 2020 Q3 5,359 5,322 5,594 5,826 5,002 5,417 4,977 5,365 5,654 Q4 5,607 5,502 5,008 5,091 4,727 5,786 5,612 5,661 5,543 Total 18,781 19,216 19,667 19,962 17,319 19,920 19,510 20,554 21,264

All data shown is for illustrative purposes only, and does not contain actual figures.

9 and refined oils, oleochemicals & biodiesel

Forecast production of the major downstream products - Forecasts of downstream production (‘000 tonnes) for both the current year and the year ahead - for each country, covering: Refined oils Oleochemicals Biodiesel • Refined oils (palm and palm kernel) Palm Palm kernel 2012 19,278 1,074 1,667 1,499 • Oleochemicals (fatty acid and fatty alcohol) 2013 18,979 1,273 1,583 1,462 2014 17,512 1,298 1,360 1,315 • Biodiesel (domestic and export volumes) 2015 19,091 1,561 1,447 1,016 2016 16,596 1,610 1,407 1,331 2017 19,455 1,263 1,385 1,150 This is accompanied by detailed analysis of: 2018 13,613 1,182 1,323 1,516 2019 19,785 1,194 1,031 1,016 • Capacity expansion 2020 17,494 1,518 1,212 1,183

• Volumes processed The subsidy paid by BPDP Sawit vs. actual sales volumes • Trade 500 450

• Export taxes 450 400 Subsidy required, per US$tonne 400 350 350 • The impact of biodiesel subsidies 300 300 250 250 200 200 tonnes/month 150 150

Biodiesel distribution, '000 Biodiesel 100 100 50 50 0 0

All data shown is for illustrative purposes only, and does not contain actual figures.

10 Area expansion

Area expansion by region in Indonesia We estimate new plantings, mature and immature areas from a combination of official statistics, data from industry players and LMC’s analysis of germinated seed sales.

We explore the relationship between CPO prices and seed sales, allowing for lags between seeds in nurseries and planting out the seedlings. hectares We present areas under different ownerships: smallholders, PTPs and private plantations in Indonesia. Oil Oil palm planted area, million

2000 2002 2004 2006 2008 2010 2012 2014 2016

Oil palm areas in Indonesia, ‘000 hectare

North Sumatra Central Sumatra South Sumatra Kalimantan Mature Immature Total Mature Immature Total Mature Immature Total Mature Immature Total 2012 20 30 50 41 16 57 44 33 77 45 17 62 2013 23 28 51 28 32 60 43 39 82 34 46 80 2014 47 21 68 21 19 40 33 47 80 38 32 70 2015 15 41 56 16 40 56 50 42 92 45 29 74 2016 25 35 60 39 36 75 30 20 50 27 35 62 2017 25 21 46 46 18 64 43 26 69 48 29 77 2018 23 26 49 20 38 58 40 22 62 16 29 45 2019 48 29 77 18 44 62 50 47 97 45 22 67 2020 20 26 46 44 36 80 23 43 66 23 48 71

All data shown is for illustrative purposes only, and does not contain actual figures.

11 Age profile drives yields

The oil palm goes through five production phases in its Oil palm yield distribution as % of average yield lifetime, with different yields at each stage. An accurate

estimate of the age distribution of trees in a plantation is 120% therefore critical to understanding output, and to projecting production. 100% 80% We adjust the published yields to reflect the impact of plantations’ age profiles. In this way we can benchmark 60%

results to gauge how well they have performed given an averageyield 40%

identical age profile. of%yearas each Yield in 20%

Our yields analysis also considers factors such as: 0% Year 1 Year 4 Year 7 Year 10 Year 13 Year 16 Year 19 Year 22 Year 25 Yea r 28 • Underlying biological cycle Plantation oil palm age profiles • Fertiliser application rates

• Agro-climatic zones CPO yields FFB yields Reported Adjusted Reported Adjusted • Underlying yield growth 2013 4.65 3.97 12.54 17.19 2014 3.89 4.64 13.17 18.27 • Macro-economic environment 2015 4.06 3.17 19.21 17.63 2016 4.51 4.26 19.30 19.11 2017 3.85 4.95 19.86 13.99 2018 3.77 4.77 14.54 15.78 2019 4.97 2.94 13.56 14.36 2020 4.15 4.72 14.67 17.19

All data shown is for illustrative purposes only, and does not contain actual figures.

12 The impact of weather

Weather has a considerable impact on production. We highlight the emerging weather conditions and review both historical and recent rainfall trends, to refine our forecasts.

Oceanic Niño Index Rainfall patterns

3.0 700

2.5 600 2.0

1.5 500 El Niño 1.0 400 0.5

0.0 Oceanic Niño Index Niño Oceanic 300 -0.5 La Niña -1.0 200

-1.5 100 -2.0 Jan Jul Jan Jul Jan Jul Jan 0 ONI 1997-2000 ONI 2015-2018 El Niño La Niña Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

13 Product Information

14 Oil Palm Service – deliverables & timing

Quarterly deliverables

• Forecast Report – electronic version in PDF

• Reference Report (80 pages) – electronic version in PDF

Full access to global presentations by Dr James Fry and senior LMC economists on the oils and oilseeds sector – via the LMC website

Availability

LMC’s Oil Palm Service is available immediately

OPQ

15 LMC client list

Apical Group Fedepalma Neste Agropalma Felda Global Ventures Olam International ANIAME Ferrero Oxiteno SA Industria e Comercio Barry Callebaut FAO Procter & Gamble BASF Fuji Oil PT Dharma Satya Nusantara BPDP Gama Corporation PT Sampoerna Bunge Golden Agri International Reckitt Benckiser Canola Council of Canada Godrej Industries RSPO Cargill IFC Ruchi Cofco Indofood Agri Resources Ltd SASOL Danec IOI Loders Croklaan Sime Darby Dow DuPont Itochu Sinarmas Ecopetrol Bhd Sogescol Emami Marico Swakarsa Sinarsentosa - DSN Emery Oleochemicals Mercuria Energy Trading Unilever EOC Einkauf Mitsui United Soybean Board Eti Gıda Sanayi ve Ticaret A.Ş Molinos Rio de la Plata Wilmar International European Commission Mondelez International World Bank and many more…

For further information please contact:

Richard Truscott (Global) +44 1865 797621 [email protected]

Irma Darwis (SE Asia) +6010 221 8337 [email protected]

Michael Schwartz (The Americas) +1 212 586-2427 [email protected]

16 Oxford Other publications

LMC International Ltd 4th Floor, Clarendon House 52 Cornmarket Street Oxford OX1 3HJ UK

Tel: +44 1865 791737

Email: [email protected]

New York

LMC International Ltd 1350 Avenue of the Americas, Floor 2 New York, NY 10019 USA

Tel: +1 212 586-2427

Email: [email protected]

Kuala Lumpur

LMC International Ltd SO-30-8, Menara 1 No. 3 Jalan KL Eco City 59200 Kuala Lumpur Malaysia

Tel: +603 2202 1414

Email: [email protected] www.lmc.co.uk