US wants to displace oil as transport fuel "for good"

Khor Reports: US plans research and new technology to get its cars and trucks off oil "for good" by focusing mostly on electricity and natural gas as alternatives.First generation bio-fuels, including palm biodiesel are facing challenges on various fronts, including the environmental. Instead, waste feedstocks are increasingly in vogue. The US energy renaissance is set to make its industry more globally competitive with energy a fraction of its old cost. There is a widespread view that the transport fuel sector will remain business-as-usual. If the new US R&D plan bears fruit, does that still hold true? The global energy market is big. Is the US move more likely to impact its own gas prices and keep international petrol prices relatively high?   

News link: ; "US President Barack Obama proposed using some federal oil and gas revenue to fund an energy security trust that would support “research and technology to shift our cars and trucks off oil for good.”..fund would be strictly focused on pursuing technologies to displace oil in transportation, particularly electricity and natural gas. SAFE’s proposal also called for yearly contributions to be capped.."; http://www.ogj.com/articles/2013/02/obama-calls-for-using-some-oil--gas-revenue-to-get-cars-off-oil-.html?cmpid=EnlDailyFebruary132013

RTRS smartly moves ahead

RTRS is looking more like a market-oriented certification scheme for soy than its cousin, the RSPO is for palm products. Both certification programs are the brainchild of the WWF. Palm oil and soybean oil are key competitors in the edible oil market.

Pertinent points and early news indicates:

a) RTRS is a simpler certification scheme, with areal percentage certified up to each grower to decide vs. RSPO's mandatory 100% areal certification.

b) The RTRS market-oriented approach shows early results with 90+% uptake vs about 50% at RSPO (current and for forseeable future on RSPO's own forecast); and this points to less resource wastage in over-certification. The RSPO suffers a certificate glut problem.
c) It is notable that early shipments are going to a buyer consortium, which points to some concerted marketing effort at RTRS, which is a contrast to the RSPO experience. 

d) Furthermore, the RSPO and its associates appear to be lobbying for higher tariffs against non-RSPO certified palm oil in some key import markets. They seek official acceptance and promotion of the voluntary standard. Could this make "involuntary" what was touted as "voluntary"? If so, this does not serve the interest of non-RSPO members, which are largely small estates and smallholders / farmers. So far, the RSPO's priority and bias has been to promote the largest corporate growers.

e) Note RTRS's tie-up with a consumer market certification for supply chain and its apparent focus on mass balance in its supply chain, ahead of segregation ie. an effort to quickly get RTRS certified soy to market? At the RSPO, the push has been for segregation with inevitable delay and added cost to reach markets, while book & claim and mass balance are seen as temporary options.

News source: 

http://mobile.foodnavigator.com/Financial-Industry/RTRS-and-GMP-sign-responsible-soy-certification-agreement/?utm_source=Newsletter_Product&utm_medium=email&utm_campaign=Newsletter%2BProduct&c=g5U1F%2FHXoYrluABmdTwN18GsLbIiO6iW#.UQCRZaNuvJs

Foods & ingredients news snippets

We have been keeping an eye on interesting news items about palm oil in end use products. These include promotion of red palm oil for deep-frying and other uses sans-colorant, Barry Callebout's RSPO-certified palm oil based cocoa products fully segregated in Europe and via mass balance in Asia-Pacific, and Unilever's Magnum ice cream EUR 1 billion sales but emerging concerns about ingredients in ice cream.

Keep updated via Khor Reports at facebook, weblink: http://www.facebook.com/pages/Khor-Reports/116785031706985

Recent news snippets include:

SternRed: product promotes red palm oil as colour and heat-stable, flavour-neutral... "can be used as a problem-free substitute for synthetic colourings like beta-carotene. It also offers price advantages over other colorant ingredients like carrot extract. When used for deep-frying it gives crisps and chips a golden-yellow colouring..." RSPO-certified. http://www.foodingredientsfirst.com/headlines/Sternchemie-Eyes-Red-Palm-Oil-as-Natural-Colorant-with-Added-Value.html

source: Sternchemie website

Barry Callebaut: offers fully segregated RSPO-cert palm oil based cocoa and chocolate products in Europe and mass balance versions in Asia-Pacific (and Americas soon). http://www.foodingredientsfirst.com/product-by-sector/Chocolate-Confectionery/Barry-Callebaut-Switching-to-RSPO-Certified-Palm-Oil-For-Compounds-and-Fillings.html

Unilever: Full-year underlying sales growth 6.9% comprising 3.4% volume and 3.3% price increases. Magnum ice cream passes Eur 1 billion sales mark.
http://mobile.foodnavigator-usa.com/Business/Unilever-CEO-Magnum-is-one-of-the-greatest-success-stories-in-the-history-of-consumer-goods/?utm_source=newsletter_daily&utm_medium=email&utm_campaign=Newsletter%2BDaily&c=g5U1F%2FHXoYqtmOc4jdtDX833yEMJsfBM#.UQR6c_L-uSp

Ice cream: there is concern consumers may start to balk at the ingredients. "There can't be a child in Britain who doesn't know that ice cream is made from gloriously rich, frozen double cream, sugar and sometimes eggs ? after all, it's there in the name, isn't it? Ice cream. Or is it? Most people would lose their appetite pretty quickly if they knew what actually went into some of the thousands of tubs of ice cream that are sold from supermarket freezer cabinets every day..." http://www.dailymail.co.uk/health/article-393432/The-chilling-truth-ice-cream.html

Khor Reports: RSPO data’s points to supply growth and lackluster demand

Back in 2010, Khor Reports first highlighted the problem of a structural demand deficit at the RSPO. The latest supply and demand forecast from the voluntary sustainability certification organisation suggests that supply is set to continue exceeding demand by a factor of two for the foreseeable future ie. market uptake for CSPO may remain at about 50 percent, even during the 2015-2030 period.

 

RSPO publishes key data from its members for the first time

The RSPO requires that its members report on both their progress and their future commitments on sustainability. In its “Annual Communications of Progress” (ACOP) effort for 2011/12, the RSPO has made a good effort to offer crucial insights into the future supply and demand for its sustainability program. For the growers, this means they need to report annually on key items such as planted area, new planting area, and third party fresh fruit bunch (FFB) sourcing. For consumer goods manufacturers (CGMs) and retailers, they need to report on volume of palm oil products sold in own-brand products. Crucially, all have to report on their time-bound plan (TBP) or year to achieve their respective 100% implementation of RSPO certification.

 

Future market uptake of CSPO may range 40-62%

By the RSPO’s reckoning, market uptake may only be 44% in 2015, subsequently drifting down to 39% in 2020 and 38% in 2030. This forecast is based on a relatively conservative “underlying demand” which comprises commitments based on current usage by CGMs (includes key users of palm oil such as Unilever and Nestle as well as big bio-diesel providers such as Neste Oil) and retailers (including the likes of Wal-mart and Tesco, with significant own-brand products businesses). For fear of double-counting, this demand forecast excludes volumes from the processors and traders category (whose members include Wilmar and Cargill), since they are supply-chain providers to the aforementioned groups and no detailed information was sought on volumes for their own end-product usage, which includes cooking oil and animal feed.

 

Source: RSPO

On a more optimistic measure, based on commitments by processors & traders, demand could rise to 7.92, 9.32 and 9.48 million MT in 2015, 2020 and 2030; resulting in market uptake of about 62% for 2015 through 2030.

Taking the average of the more conservative and more optimistic demand forecasts, the outlook is for 51% market uptake for the period 2015 to 2030. Thus, the RSPO concludes in its October 2012 report that “the current pattern of only about half of available CSPO being consumed may persist unless more manufacturer and retailer members of the RSPO make commitments to use it on the supply-side…. the RSPO needs to work harder to increase the number of CGMs, including as yet non-members who are committing to use CSPO as well as far harder at promoting CSPO amongst companies that are not yet members. In particular, markets outside of Europe and the US need to start demanding CSPO if the projected supply is going to be matched by demand.”

Structural oversupply

This lacklustre outlook is despite the good effort of RSPO in rapidly expanding members in the CGM and retailer categories in the last two years and pushing for 100 percent global procurements from them by 2015. The effort of the WWF's buyers’ scorecard (to pressure CGMs) has been quite instrumental in this regard too. RSPO is the brainchild of the WWF.

The forecasted demand deficit therefore appears to be a structural problem. We think it is a result of two factors.

First, the highly concentrated industry structure in the global palm oil growing sector clearly exceeds that of the global CGM industry. Unilever, with 1.3 million MT of palm oil usage each year, has played a key lead role in the RSPO. Subsequently RSPO has signed on many others. It is hard to think of a big global brand who is not a member. However, the commitments from nearly all the big global brands are insufficient to mop up supply of RSPO sustainable certificates from the growers. This sector is highly concentrated with 85 percent global supply from Indonesia and Malaysia where very large corporate growers have a big market share. In Indonesia alone, there are five (5) groups whose individual annual production of palm oil are close to or significantly exceed Unilever’s tonnage. Big growers are key contributors to the RSPO. Small estates and smallholders have been left out of the certification game (apparently unless receiving exceptionable financial and/or non-financial support).

Second, the RSPO requires 100 percent of a grower’s area to be certified. It is therefore designed to disregard market demand. This is in contrast to the Roundtable on Sustainable Soy (RTRS), the certification for soy, the key competitor of palm oil. Here, the WWF and Unilever also play key roles. RTRS members, while having to abide by some key universal principles, are free to decide how much of their area should be certified.

 The RSPO therefore faces the challenge of boosting demand for sustainable palm oil, beyond the global brand names and in the face of "palm oil free" challenges in its key EU market.

Malaysia's political shock to the CPO price?

Khor Reports: Our comment on recent steep CPO price drop. For the first time since the Global Financial Crisis, CPO price has fallen below Brent.

We are hearing from the market various reasons. 1) Demand has been relatively stable (China buying stabilizing, high growth markets reducing buying at high prices etc) vs rising seasonal supply. 2) Biodiesel mandate in the EU to be cut in the future. 3) Technical charts have "broken". 4) Malaysia's one year policy paralysis vs Indonesia's change in export duty structure has resulted in slower sales from Malaysia, building up stocks. Perhaps most interesting is this one, 5) The deleterious and unintended impact of Malaysia's policy to add another 2 million tonnes of CPO export duty free quota in 2012. Market participants commonly say that they reckon that 1/2 of the usual 3-3.5 million tonne annual quota, has gone to non-market players. There is suspicion that the additional quota for this year may have been given mostly if not entirely to non-market players and/or "market underperformers". After all, this is election or pre-election year in Malaysia, where political largesse is directed toward likely supporters i.e. via special contracts, licenses or quotas. In Malaysian parlance, quota holders are now often dubbed as "AP holders" (likening them to the import licence multi-millionaires created in the its tightly controlled automobile market). However, instead of helping clear CPO stocks in Malaysia and boost prices, the added 2 million tonnes quota may have seriously backfired. The market reckons that the quota recipients, hoping to make a fee by flogging the quota certificates, may have found few if no takers among the big palm oil companies and traders (who are capable of moving the product). The regular players would see no need to pay a special premium in a big and liquid market (after all, lower prices will also clear the market and the quotas will expire). Thus, the special Malaysia CPO quota players may have been left with quotas they are unable to "palm off." Furthermore, they are also incapable of effectively moving the CPO into the world market. Worse, some may have taken trading positions, and with the steep drop in CPO price, may now also face big trading losses. Thus, has there been an added crunch in the palm oil market, as a result of Malaysia's shock attempt to generate special quotas for an unknown group of recipients (there is talk that they are are under "Official Secrets Act" non-disclosure protection). A lesson in how politics in the second largest palm oil producing country might create a small shock to the commodity price? An interesting theory.

AP = "approved permit"

Updated 5.30pm: Note the mention of surrender of the "approved permits" or APs on CPO: "The minister (Bernard Dompok) also noted that for this move to be effective, there has to be curbing exports of duty-free CPO as well. "Out of the quota of five million tonnes of duty free CPO we've allowed to be exported, only half has been utilised. I want the companies which have not used up their quotas to surrender back the approved permits," he added... http://www.mpoc.org.my/Malaysia_to_Slash_CPO_Export_Tax.aspx

Felda Global listing: over RM600 million in profits pocketed so far?

Felda Global listing was "designed to succeed," over RM600 million in profits pocketed so far? Khor Reports.

Thank you for your overwhelming interest in our report on "Felda Global - a socio-political perspective" issued back in May. We were interviewed by Al Jazeera, Bloomberg and Reuters on the mega-listing, quoted in the Financial Times, The Edge Malaysia and also cited in some international reports.

I've had some queries and I thought more of you may be wondering what's been happening with share trading in Felda Global so far. It's about a month and a half since the listing on 28 June. I've compiled some statistics on price and volumes traded to give a picture of what is the value of shares traded and how much profits may have been made in this so-called "designed to succeed" listing; it was the 2nd largest in the world after Facebook.

Data briefing and analysis paper issued by Khor Reports on 16 August 2012. Please contact us for a copy.

100tC/ha ceiling?

Khor Reports: Palm oil rumour-mill reckons that a 100tC/ha carbon stocks ceiling is now being considered by GAR-TFT for new land development by oil palm plantations.

This is up from the initial ceiling of 35tC/ha mooted in the Nestle-GAR-TFT deal, where GAR or Golden-Agri-Resources, part of the Sinar Mas Group, also agreed to no planting on any peat land.