Rising tensions in the US-China trade dispute could prompt China to turn to palm oil as a substitute for soybean, potentially increasing demand for palm oil.
KUALA LUMPUR: Rising tensions in the US-China trade dispute could prompt China to turn to palm oil as a substitute for soybean, potentially increasing demand for palm oil.
However, Hong Leong Investment Bank (HLIB) Research said this positive impact may be offset by uncertainties in global demand, driven by US-imposed tariffs and falling crude oil prices.
“The US now charges a 145 per cent tariff on Chinese goods while China imposes a 125 per cent tariff on US goods.
“While the current situation remains fluid, witnessed by the flipflopping change in US policies, including a 90-day pause on tariffs for most countries except for China, the intensified trade tension between US and China will result in a shift in trade flows within the vegetable oil complex,” it said in a note.
The firm noted that the heightened US-China trade tensions will likely prompt China to lessen its reliance on US soybean imports.
It said this could be done by redirecting some of its purchases to South American producers like Brazil and Argentina, or by partially replacing soybean with palm oil as an alternative.
“Recall, China’s move to impose a 25 per cent tariff on US soybean imports (in a move to retaliate against US’ tariffs on Chinese products) had resulted in China’s soybean imports from US declining by 57 per cent or 8.6 million metric tonnes (mt) in 2018, while its soybean imports from Brazil rose by 41 per cent or 21.8 million mt.
“During the year, the tariff war also resulted in China’s palm oil imports increasing by 5 per cent to 5.3 million mt,” the firm added.
According to HLIB Research, the effect of US tariffs on the country’s palm oil demand is expected to be minimal.
In 2024, the US imported a total of 1.8 million metric tonnes of palm oil, with the majority sourced from Indonesia.
“We maintain our crude palm oil (CPO) price assumptions of RM4,000/mt and RM3,800/mt for 2025 to 2026.
“We note that palm oil supply has started showing signs of recovery, and this would cap upside of palm oil prices,” it said.
Source: New Straits Times
