Palm Oil Demand Scenario in China post COVID-19

China’s economy started picking its pace but not the demand for palm oil. The total import of palm oil (PO), rapeseed oil (RSO) and soybean oil (SBO) in Jan-Mar 2020 were 2.49 million MT, decreased by 7.34% as compared to the same period last year, where drop-in PO was the main factor contributing to this. PO import volume was at 1.82 million MT, which decreased by 367,701 MT or 16.8% as compared to last year. In contrast, import of SBO increased by 24.1% or 33,810 MT y-o-y, and the import of RSO was 493,357 MT, up 136,510 MT or 38.25% as compared to the same period of last year.  The ongoing poor demand for palm oil is mainly attributed by COVID-19 pandemic and an unattractive price discount against other major edible oils.

Reducing Edible oil Demand & Increase in Soybean Import

As per April 2020’s estimation, the annual output of edible vegetable oil in China will be at 26.40 million MT in 2019/20 and the import volume is 7.88 million MT. The consumption volume is estimated to be 32.43 million MT, decreased by 960,000 MT compared to last month’s forecast. The reduction in the figure mainly due to the significant reduction in oil consumption in the HORECA sector due to the COVID-19 epidemic spread.

Nevertheless, a report of Agricultural Outlook in 2020-2029 released by the Ministry of Agriculture and Rural Affairs stated that China’s soybean imports in 2020 are expected to reach 92.48 million MT. Consequently, the soybean output in 2020 is expected to be at 18.81 million MT, an increase of 3.9% year-on-year, and the crushing volume is expected to be at 85.98 million MT. China’s soybean consumption is expected to grow steadily in the next decade and will continue to rely mainly on imports, especially with the increasing hog production.

(Please refer to the article for more details: http://mpoc.org.my/chinas-hog-production-growth-a-post-asf-update/)

Palm Oil Stock & The Price Factor

The stocks building since the end of last year, and expectation of poor demand due to the Covid-19 have slowed down the interest in sourcing palm oil in Q1 2020. These factors ultimately resulted in China having only half the palm oil stock level it was holding, to record low level of half a million MT since Dec 2018. By 22 May 2020, China’s palm oil stock was at 523,500 MT, decreased by 83,500 MT from last month. Annual demand for palm oil in China as per 2019 record is 7.55Million MT or 630,000 MT/month. Such a drastic drop in stock has inevitably improved the import margin (between the landed cost and the local market price for palm oil) which turned positive since May.

However, with the rise in the soybean import and its crushing activity for soymeal, the soybean oil availability in the market will increase. Oversupply of soybean oil is expected to reduce the edible oil’s price. The price discount disparity against the palm oil will be lessened. So, chances are slim to expect a very rapid demand growth towards palm oil.

On a bright side, the rising climate temperature from the south to the north of China gradually enables palm oil to be used without fractionation. If the fractionation cost discarded, the price palm oil against soybean oil (or any other soft oil) will be attractive for buyers. Hence, it is expected that the import of palm oil will continue to pick up in Q3 2020 with an anticipated average monthly import of 600,000 MT. 

(Please refer to this article for further reading on Q2 palm oil outlook: http://mpoc.org.my/chinas-palm-oil-import-q1-performance-and-q2-outlook/)

Prepared By: Desmond Ng and Theventharan Batumalai 

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