The Future of Vegetable Oils in Central & Eastern Europe by David Jackson Director, LMC International Ltd
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The Future of Vegetable Oils in Central & Eastern Europe
by David JacksonDirector, LMC International Ltd
The market for oils in Eastern Europe
Let’s start by looking at how the EU-27 oil market has developed since 1990. Rape and palm have been central to expansion.
0
1
2
3
4
5
6
7
8
9
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
EU
Oil
Co
nsu
mp
tio
n (m
illi
on
to
nn
es)
Soy Oil Rape Oil Sun Oil PKO
Palm Oil Coconut Oil Groundnut Oil
In Eastern Europe, rapeseed and palm oil are much less dominant, with sun oil taking a leading role.
0
500
1,000
1,500
2,000
2,500
3,000
Austria Czech Hungary Romania Bulgaria Slovakia Ukraine Russia
Co
nsu
mp
tio
n ('0
00 t
on
nes)
Palm Oil Soy Oil Rape Oil Sun Oil Others
If we express each oil as a % of total demand, we see that the Danube corridor uses much less palm oil than elsewhere.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Austria Czech HungaryRomaniaBulgariaSlovakia Ukraine Russia EU-27
Co
nsu
mp
tio
n (%
of to
tal o
il)
Palm Oil Soy Oil Rape Oil Sun Oil Others
In other southern EU states, such as Italy and Spain, palm oil is even more prevalent.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UK Germany France Netherlands Italy Spain
Co
nsu
mp
tio
n (%
of to
tal o
il)
Palm Oil Soy Oil Rape Oil Sun Oil Others
This diagram compares palm oil use as a % of total oil consumption across Europe.
0% 10% 20% 30% 40% 50% 60%
Austria
Czech
Hungary
Romania
Bulgaria
Slovakia
Ukraine
Russia
UK
Germany
France
Netherlands
Italy
Spain
Palm Oil Consumption (% of total oil)
If we convert this to consumption per capita, we see that palm oil has a long way to go in the Eastern EU and Danube region.
0 2 4 6 8 10 12 14
Austria
Czech
Hungary
Romania
Bulgaria
Slovakia
Ukraine
Russia
UK
Germany
France
Italy
Spain
Palm Oil Consumption in kg per Capita
With the right infrastructure in refining and transport, palm oil consumption will benefit from GDP increases in this region.
0% 1% 2% 3% 4% 5% 6%
Austria
Czech
Hungary
Romania
Bulgaria
Slovakia
Ukraine
Russia
UK
Germany
France
Netherlands
Italy
Spain
GDP (% annual growth)
A new way of forecasting oil prices
Let’s start with the world before 2007. In this “old” world, there was no link between petroleum and veg oil prices.
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900
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
EU
Pri
ces,
US$ p
er
ton
ne
Brent Crude Palm Oil Soy Oil Rapeseed Oil Sun OIl
Palm oil was actually less
expensive than crude oil
This all changed in 2007, with the emergence of a price band linking vegetable and mineral oil prices.
200
400
600
800
1,000
1,200
1,400
1,600
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
NW
Eu
rop
e p
rices,
US
$ p
er
ton
ne
Brent Crude Palm Oil Soy Oil Rapeseed Oil
Here we have drawn lines to illustrate the price “band”, with floor and a ceiling.
200
400
600
800
1,000
1,200
1,400
1,600
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
NW
Eu
rop
e p
rices,
US
$ p
er
ton
ne
Brent Crude Palm Oil Soy Oil Rapeseed Oil
Why has the linkage emerged?
U.S. + German biodiesel use is sensitive to changes in the difference between biodiesel (and hence vegetable oil) prices and diesel.
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800
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Mo
nth
ly b
iod
iese
l d
em
an
d, '
000 t
on
nes
-60
0
60
120
180
240
300
Pre
miu
m, U
S$ p
er to
nn
e
US + German demand Average US & German biodiesel premium
This link helps us forecast prices
Because of the price link, we should now think of oils prices as equal to the diesel price plus a premium over diesel.
-200
-100
0
100
200
300
400
500
600
700
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12EU
pre
miu
m o
ver
die
sel,
US
$/t
on
ne v
eg
eta
ble
oil
CPO SBO RSO CPO Average SBO Average RSO Average
Palm oil today is below its average premium since 2007, but output increases will keep stocks high for the rest of 2012.
-200
-100
0
100
200
300
400
500
600
700
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12EU
pre
miu
m o
ver
die
sel,
US
$/t
on
ne v
eg
eta
ble
oil
CPO SBO RSO CPO Average SBO Average RSO Average
Oil price relativities
Palm oil has maintained a persistent price discount at EU ports. If anything, palm’s price competitiveness is increasing.
-100
0
100
200
300
400
500
Jan-98 Jul-99 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Jul-11
$/t
on
ne
Soybean Oil Premium over Crude Palm Oil Rapeseed Oil Premium over Soybean Oil
Impressive recent yield gains in the oil palm sector have allowed it to retain its price competitiveness.
1.2
1.5
1.8
2.1
2.4
2.7
3.0
3.3
3.6
3.9
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
To
nn
es
per
hect
are
Palm oil G3 soybean Rapeseed
Meanwhile, the status of sunflower oil as a premium oil in the EU is being eroded.
-200
-100
0
100
200
300
400
500
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
EU
SFO
Pri
ce P
rem
ium
over
RSO
, US$ p
er
ton
ne
This is for the same reason as palm oil: expanding output means market share has to be captured.
0
2
4
6
8
10
12
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18
20
2001/02 2003/04 2005/06 2007/08 2009/10 2011/12
Su
nse
ed
Ou
tpu
t, m
illi
on
to
nn
es
-160
-120
-80
-40
0
40
80
120
160
200
240
Su
n O
il Pre
miu
m O
ver R
ap
e O
il, $ p
er to
nn
e
Combined Ukraine and Russia Sunseed Output
Sun Oil Premium Over Rapeseed Oil
Conclusions
1.Palm oil consumption is relatively low in the Danube corridor. We would expect this to increase with GDP.
2. Palm prices will find it hard to increase in the next few months as production will be good.
3. Impressive yield gains have underpinned the palm price discount.
4. The sunflower oil premium has also weakened as output has expanded.
Conclusions
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© LMC International, 2012All rights reserved
This presentation and its contents are to be held confidential by the client, and are not to be disclosed, in whole or in part, in any manner, to a third party without the prior written consent of LMC International.
While LMC has endeavoured to ensure the accuracy of the data, estimates and forecasts contained in this presentation, any decisions based on them (including those involving investment and planning) are at the client’s own risk.
LMC International can accept no liability regarding information analysis and forecasts contained in this presentation.
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