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The last arbitrage

May 3rd, 2019
​⏰ 1 minute read
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Price
Palm oil prices remain weak & the pattern is the same. For the last 5 or six months, the spot price falls to RM1,900 while the futures hold at 2,150-2,200. That’s a 14-18% arbitrage which then plays out... spot prices rise.. & then fall back down again. But this is the last arbitrage.

Deficit
The latest Oil World has come out & contains some staggering numbers. First & most importantly they’ve shifted from a small surplus for this fiscal year, to a deficit. They’ve been talking about the secular switch from years of surpluses to deficits, but this is the first hard number.

Demand
The 2 reasons for this is because supply growth is slowing down & also they have increased forecasts for demand. This has brought demand growth to a staggering (& what in their words is an ‘unprecedented’) 10%.... Demand is coming from both food & biodiesel. The reason for the demand growth is crucial.

Edible oils
The reason demand for palm oil is so strong is the shortage of growth of other oils. The number 2, Soy is projected to have no growth. The rest are too small to make any difference. To show how extreme this situation is, 3 years ago Palm was 7m tons bigger than Soy, this year... 20m tons. There’s now a shortage of all edible oil.

Shortfall
As if all this isn’t price bullish enough, there’s another element lurking in the background. The Palm Oil Supply forecast is still growth. But clearly Oil World is getting nervous. 1Q yoy was strong because of low base, but April is negative...throw a supply shortfall into this mix & this month will be the last arbitrage for a long long time.

Sebastian
PT Eagle High Plantations Tbk
​12F Noble House
Mega Kuningan
Jakarta 12950
​+62 (021) 2978 3093,
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