Quarterly price update Q1 2012 OFI presentation

Quarterly price update Q1 2012OFI presentation

Orkla Brands PurchasingApril 12, 2012

Orkla Brands Purchasing2

Agenda – Q1 presentation OFI

Speaker Category Time• Kine B. Jakobsen Welcome 09:30-09:35

Flour 09:35-09:45Sugar (world) 09:45-09:55

• Bjørn Wiman Sugar (EU) 09:55-10:10• Mattias Wivesson Meat 10:10-10:20• Angela Sundbäck Veg.oils 10:20-10:30• Johanna Falk Additives 10:30-10:40• Niklas Myrbäck Cocoa 10:40-10:50• Mikael McKeown Dairy 10:50-11:00• Per Lindström Packaging 11:00-11:15• Kine B. Jakobsen Wrap-up 11:15-11:20

Orkla Brands Purchasing

Market prices up 2-13% during Q1 but are expected to fall back 0-5% in Q2-Q3

• The 2011 harvest season in Norway was not good, and we have a high degree of imported grains

• In Europe, prices have stabilised in the 200-210 range

• Global inventories are increasing as the growth in supplies outweighs the growth in demand. In Europe this is mainly due to an increase in acreage

• Uncertainties in Europe relating to damages to the winter wheat

• Logistical challenges in Russia has decreased export volumes

3

Wheat

Main market events

• Logistical problems in Russia due to winter conditions will ease and hence bring more grain to the market before the new European crop season

• European prices are expected to decline due to a supply surplus, but before we know more about the state of the winter wheat and get the spring wheat planted the market remains indecisive

• If no major weather abnormalities occur we should expect a price decline of 0-5% to the 190-200 EUR/mt level

Going forward

Source: Mintec, Demetra, Handelsbanken, Kairos

1 year graph

5 year graph







Market prices up 2-10% during Q1 but are expected to fall back to December 2011 levels in Q2

• World sugar prices mainly in a sideways trend since December 2011, but Q1 ends with some major upward movements due to fears of dry weather in Brazil

• Ahead of the Brazilian chrushing season the production is expected up 8% on last year

• All in all the 2012/13 season is expected to produce a suplus of ~5 mill mt – Brazil, India and Thailand are looking good– China’s producion is declining

5

Sugar (World)

Main market events

• A price decline is expected due to supply surplus • Price floor realistic in the 22-23 c/lbs range

– Low inventories keep market on toes– Brazilian ethanol price sets floor to any price fall

Going forward

Source: Mintec, Kingsman, Bunge, Kairos

1 year graph

5 year graph







EU Reported Sugar price (EU27) is reported to be 683 €/ Mt up from 654€ in Dec

• Deregulation of EU Sugar Market • Status of EU commission reported End stock 2012 /

11, what is the real figure?• EU Commission is investigating the volume of Sugar

supply and spot prices around EU• CIUS calls for increased end stock to 3.5 MMT

– 1 MMT from import– 600’ Mt from OOQ sugar to Qouta sugar

7

Sugar (EU):

Main market events

• Next EU managment commity meeting in mid April• Release of OOQ sugar (200€/Mt in Levy)• Import tenders • CIUS calls for no extra charges

• CAP 2020 road map is uncertain, when will decision be taken and how will the sugar market be deregulated

• Planting of Sugar beet well on its way

Going forward

Source: EU Com and Kingsman


EU commission aims to have a balanced market and less interested in creating price pressure…….

8

• European Sugar producers will most certainly try to press prices upwards 10 – 50 € / MT in Germany and France

• Planed meetings with the Sugar producers in April - May

• Orkla will send out RFP I in May • Main focus must be to eliminate

price differences EU mainland Vs. Scandinavia – Please forward evidence!!!!!!!!

• Price indication Company X Q4 2012

• Current price 770 €/mt DDU• Polski Cukier 827 €• Südzucker 825 €• Suiker Unie 788 €• Nordic Sugar 770 €

2015 2020

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The shortage on the beef and pork markets in EU gets more severe and prices for main trimmings are expected to increase even further for Q2 2012

• Pig and beef cattle prices in the EU remain approximately on the same level as in December 2011. Noted a price decrease for pig of 4-6% compared to prices in November 2011.

• Prices for both Pork and Beef trimming to Orkla Brands in EU are about 10% above the prices we had at end of 2011

• Russia and Asia continue to be important export markets for EU beef and pork.

• The beef market in Norway is facing a historical shortage of approx. 8 300mt which leads to an expected average price increase of 2,5% for 2012.

Main market events

• The forecast for both beef and pork trimmings are that availability will further decrease and thus prices will continue to increase in Q2 2012 compared to Q1 2012

• EU beef production is expected to further tighten, especially in Q2 2012. The updated forecast for 2012 is that the volumes will be 3,2% less than in 2011

• The slaughtering of pork in Norway is expected to increase by 2% for 2012 compared to 2011

Going forward

Meat (EU)







Orkla largest veg.oils up ~5% in Q1, but in general fundamentals support the increase to be short term

• World production of the 17 major oils and fats continued to increased pronouncedly in Q1 2012

• Veg.oil price changes since 1 Jan 2012:– Palm oil Cif Rotterdam: +7%– Coconut oil Cif Rotterdam: -18%– Palm kernel Cif Rotterdam: -13%– Rapeseed oil Exw Rotterdam: +2%– Sunflower oil Exw Rotterdam: +4%– Palm olein FOB Malaysia: +6%

12

Vegetable oils

Main market events

• In Q2 it is expected that world production will increase less than the normal demand growth seen in previous seasons, causing pressure on prices

• Palm oil: Fundamentals support price increase, at least short term (3-5 months).

• Rapeseed oil: Continued tight supplies and fundamentals overall support price increase.

• Sunflower oil: Overall fundamentals support downward pressure on price, particularly because of increasing supply surplus

Going forward

Source: Mintec, Kairo







Market price increased with 13% in Q1 due to scarcity expected increase from Jan – Dec 2012 is 10 to 20%

• Wheat gluten correlates to corn gluten with 92% but is also dependent on other protein markets such as milk and soy (77% correlation)

• Grain market has a minor effect on gluten price• In general an increasing price trend for soy bean.

Since January + 10 to 15%• Recent price developement in wheat gluten

prices since January (date of contract) until end of february was +13% benchmarks from gluten supplier Syral

14

Wheat Gluten(EU):

Main cost drivers & development

• Wheat gluten is a bi product when producing wheat starch with the ratio of 70% wheat starch generates 10% wheat gluten and at the moment

there is a scarcity in the market!• Maize yellow A1 LIFFE Paris FR +8% since Jan 2012 (Blue graph) & Wheat milling LIFFE Paris FR

+6% since Jan 2012 (Red graph)• Guesstimate of price increases from January until

December 2012 for wheat gluten is between 10 to 20%

Going forward

Source: Datagain


Main cost drivers has increased in Q1, price increases in 2012 for food starches are expected from 0 to 10%

• Native food starches has had relatively stable price increase compared to modified starch (green curve)

• Cost drivers are grain market and demand in noon food applications

• Wheat starch correlates with wheat prices to 81% and with corn starch to 97%

• EU native food starches changes in last quarter 2011 +- 0%

15

Food starches(EU):


• Wheat production revised down due to winterkill• Maize yellow A1 LIFFE Paris FR +8% since Jan 2012 (Blue graph) & Wheat milling LIFFE Paris FR

+6% since Jan 2012 (Red graph)• Guesstimate of price increases from January until

December 2012 for native food starches + 0 to 10%

Going forward

Source: Datagain


Main cost driver increased 4-9% in Q1 with weighting on emulsifier price increases in 2012 of 0 to 8% are expected

• For most emulsifiers vegetable oils (palm sunflower, soybean oil) are the main cost driver affecting price of 30-80% together with selected acids (glycerine, stearic acid, tartaric acid, ricinoleic acid, acetic acid, lactic acid)

• In general an increasing price trend for palm oil sunflower oil and soybean oil since January + 4 to 9%

16

Emulsifiers(EU):


• Tartaric acid (+80% since Q1 2011 until Q1 2012) as well as Glycerine (in Q4 2011 +20%)has had high price increase since first quarter of 2011 – however these affects emulsifiers between 10 –

20% of the total raw material price• Other acids reveals a more stable trend

• Guesstimate of price increases from January until December 2012 for emulsifiers is between 0 to

8%

Going forward

Source: Datagain







From very low levels in December 2011, prices have started to increase again and will likely continue higher

• Supply improved slightly from previous esti-mates but prices have been extremely pressured due to an extraordinary strong crop in 10/11

• Demand seen relatively stable for cocoa beans but stronger on ingredients

• Price development Q1:– Cocoa Beans: +10%– Cocoa Butter: +14%– Cocoa Powder: -2%– Milk Chocolate Base: +11%

18

Cocoa and Chocolate

Main market events

• Surplus of cocoa beans from last crop will diminish if demand continues to stay stable

• Warm weather causing fears of less supply in mid-crop (starts May)

• If not exceptional good weather coming main crop (October), there will be a new deficit and thus prices will soar

• A stronger USD could lift EUR and GBP prices (EUR and GBP unchanged from last quarter)

• Powder expected to continue decrease

Going forward

Source: Mintec Datagain, Kairos, Reuters

1 year development

5 years development

Cocoa BeansCocoa Butter

Cocoa PowderMilk Chocolate Base Index (67%

butter and 33% liquor)







Market prices down 8-19% during Q1 and are expected to fall somewhat more in Q2

• NZ auction prices for SMP and WMP are down 2-5% since Dec 2011

• German market price changes since 1 Jan 2012:– SMP: -16%– WMP: -8%– Butter: -19%– Cheese: -8%

• EUR is up ~3% vs USD since December, making EU dairies less competitive on world markets

20

Dairy (EU)

Main market events

• EU producers of milk powders are facing tougher competition from US dairies on export markets

• Milk deliveries are at high levels historically and we are entering northern hemisphere peak production period

• Lower world market prices and less competitive currency means EU dairies will move sales attention to local markets. With much EU milk to process, we may well see prices continue to slide in Q2

Going forward

Source: ZMB, Hoogewegt Horizons, Dairy Trader, Kairos







Raw materials have started to increase again from end of 2011 and is likely to continue to grow

Assumptions:Orkla’s consumption per raw material grade = OPP x 63% + PE x 15% + PET x 9% Raw material share of total price is for Orkla in average approximately 70%

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Flexibles raw material development Jan 2007 - Feb 2012

PP Copolymer film

PET packaging grade

LDPE Extrusion grade (mainly for film)

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Flexibles raw material development Feb 2011 - Feb 2012

PP Copolymer film

PET packaging grade

LDPE Extrusion grade (mainly for film)

• Feb 2012 compared to Q4 2011– PE has increased by 9%– OPP has increased by 7%– PET has increased by 2%

• End price effect on Orkla’s flexible packaging portfolio is approx 5% higher prices

• Prices are likely to continue to increase in Q2– Propylene, ethylene and nafta prices increase

due to higher crude oil prices along with temporary reductions in capacity for resin suppliers

– Resin suppliers returning to normal capacity in Q2 will limit the long term effect

Flexible packaging

Source: PIE (Plastics Information Europe)

Main market events

Going forward


Raw materials have started to increase again from end of 2011 and is likely to continue to grow

Assumptions:Orkla’s consumption per raw material grade = PP x 40% + HDPE x 40% + PET x 20% Raw material share of total FCA price is for Orkla in average approximately 50%

Source: PIE (Plastics Information Europe)

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Rigid plastics raw material development Feb 2011 - Feb 2012

PP Homopolymer -Injection

PET packaging grade

HDPE Blow moulding standard

• Feb 2012 compared to Q4 2011,– HDPE has increased by 9%– PP has increased by 7%– PET has increased by 2%

• Slight end price effect increase on Orkla’s rigid packaging portfolio by 4%

Main market events

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Rigid plastics raw material development Jan 2007 - Feb 2012

PP Homopolymer -Injection

PET packaging grade

HDPE Blow moulding standard

• Prices are likely to continue to increase in Q2– Propylene, ethylene and nafta prices increase

due to higher crude oil prices along with temporary reductions in capacity for resin suppliers

– Resin suppliers returning to normal capacity in Q2 will limit the long term effect

Going forward

Rigid plastics


Market prices continued to slowly decrease from Sept-11 to Feb-12 but increases are expected during Q2

• Increasing demand during Q1 for corrugated board, deliveries rose by 3.2% in January and still rising.

• Raw material prices rising while corrugated board prices was declining

• German market price changes since 1. Sept 2011:- Brown Kraftliner: -8% - White Top: -4%- Semi Chemical: -10% - Recycled Fluting: -6%- Testliner II: -6%

24

Packaging Paper

Main market events

• Price hikes from €20-80/t are still on top of the agenda– Price increases announced both for Recycled Case

Material and Kraftliner • Food Industry is driving demand for corrugated board

in 2012– Have started to make use of corrugated board as a

marketing instrument– Expect a moderate 0.25% increase in demand

Going forward

Source: Euwid Germany Price Watch at www.euwid.com

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1 year price development Feb 2011 – Feb 2012Euwid Germany Index

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Prices for Aluminum is expected to be stable during the coming months

• Q1 saw aluminium correcting up ~15% from low levels in December

• World supply is in a downtrend, which should push up the price. On the contrary, demand is in an uptrend, which also will push up the price.

• The supply/demand balance shows a supply-deficit for 2011 turning into a small supply-surplus in 2012. Any surplus should depress prices.

25

Aluminium

Main market events

• The inventories in weeks of consumption are in an uptrend, which puts a downward pressure on prices. Similarly, the cost drivers are in a downtrend and therefore also putting a downward pressure on the price of aluminium.

• Prices are expected to be stable with smaller adjustments the coming months

Going forward

Source: Mintec, Kairos

5 year development

1 year development


Prices for glass will increase with 5-6% in the Nordic Region from 1 January 2012

• Prices will increase from 1st of January 2012

• In the Nordic Region prices increase with 5-6% while in southern part of Europe we see increases of 6-7%

• The competition has increased due to reduced volumes in the market.

• There is no lack of capacity, but in a longer perspective the suppliers can always close mills to balance supply and demand.

Glass


Prices for tinplate decreased with 4-5% from January 2012

• Both world supply and demand of tin is in an increasing trend, and has been so since 2009. As the demand has been increasing at a higher pace 2010 ended up with a supply deficit. Although 2011 is forecasted to be a deficit year as well, the size of the deficit is expected to be smaller than in 2010.

• The seasonality pattern usually push prices up from January to April, and we could expect something like this. But we do not have a signal of this coming increase yet.

• During 2011 prices for tinplate increased with 32-35%

• From January 2012 prices for tinplate decreased with 4-5%.

Tinplate







Please contact relevant Category Manager/Analyst if you have any questions or comments.

Remember that you can find additional material on the Purchasing portal: http://orklanet.global.corp/purchasing

Thank you for listening!

CM/CA Category Tel.no E-mailKine Jakobsen Grain based +47 900 77 079 [email protected]örn Wiman Sugar +47 413 34 728 [email protected] Wivesson

Meat +46 703 15 18 19 [email protected]

Angela Sundbäck Veg.oils +47 452 52 900 [email protected]

Johanna Falk Food Additives +47 90 80 61 66 [email protected] Myrbäck Cocoa +47 90 25 93 82 [email protected]

Mikael McKeown Dairy +47 40 47 87 56 [email protected]

Per Lindström Packaging +46 702 46 29 00 [email protected]

mailto:[email protected]



Documents

Quarterly price update Q1 2012 OFI presentation