China’s Palm Oil Market Outlook 2021

China is one of the world’s largest importer of palm oil, however, its year-on-year palm oil import is highly dependent on local soybean crushing activities. Higher soybean crushing leads to more soybean oil produced. The resultant increase in locally produced soybean oil reduces the spread between soybean oil and palm oil, making palm oil less competitive. From the correlation response between soybean oil output and palm oil demand, it can be concluded when soybean oil output is higher than oils and fats demand, and palm oil demand usually drops (Chart 1).

China soybean crushing for 2021 influenced by further recovery of ASF

China’s ASF epidemic started in August 2018 in the northern city of Shenyang. The epidemic resulted in a significant decline in swine number in 2019 (Refer to table 2). In 2019, the swine population declined by 27.4% or 117.7 million to 310.4 million. Following the outbreak, the Chinese government created a policy to assist the recovery of the swine sector. Efforts for the recovery of the swine numbers have been successful and has resulted in the increase in the swine stocks from 2020 onwards.  The number of swine population increased by 96.0 million or 30.9% to 406.4 million in 2020 and by another 77.2 million or 19.6% to 483.6 million in 2021.

Source: Statisa & USDA

Slower growth in swine population in 2021 led soybean crushing to be less vigorous

Soybean meal consumption increased at a slower pace in 2021 of 2.2 million MT compared to an increase of 4.6 million MT in 2019 due to lower growth in the swine population (Refer to table 1). In 2020, the swine population increase by 96.0 million much larger than the expected increase of 77.2 million in 2021. A key contributing factor to the decrease in swine population growth in 2021 is the rapid fall in swine breeding profit. According to one of the speakers from the recently concluded MPOC’s internet seminar POINTERS, breeding profits per swine have fallen from RMB3,100 per swine in November 2019 to RMB1,200 in March 2021. The prospects of recovery of swine breeding profitability in the coming months is slim because more piglets will be available in the market as the industry continues to recover from ASF.  Another factor that led to lower growth in soymeal demand in 2021 is the outbreak of ASF in some areas in China during the first quarter of 2021 which led to a higher amounts of young swine been slaughtered. Soybean imports and soybean crushing are likewise growing at a slower rate, in line with the slower rise in soymeal consumption in 2021.

Table 1: China’s soybean imports, crushing and meal consumption ( ‘000 MT)

  Soybean imports Soybean Crushing Soybean Meal Consumption
2019 88,512 86,750 87,200
2020 100,328 91,800 91,760
2021 100,510 94,000 94,006

Source: Oil World & MPOC Estimates

Decline in Supply of Oils & Fats and lower growth in soybean crushing is expected to benefit palm

In 2021, oils and fats situation is likely to be tight due to decreased growth in soybean crushing, growing consumption as the COVID 19 situation stabilized and China’s increasing purchase of edible oils for its reserve. Another factor that might force the increase in the imports of oils and fats is the low oils and fats inventory level. Importers are said to be very cautious in their imports for fear of importing more than the market needs. As such, they are reluctant to keep their inventory high.

                                                                   Chart 3

Discount of palm oil over soyabean oil favors higher palm oil import

Tightness in the edible oil market is reflected in the sharp increase in edible oil prices with RBD palm olein recorded a sharp increase as prices rose from 4,600 RMB/MT in May 2020 to 1,000 RMB/MT in March 2021.  Meanwhile, refined soybean oil price rose from RMB6,000/MT to RMB10,000/MT for the same period in comparison. Based on this favourable factor supporting edible oil imports and palm oil competitive price, the speaker who presented a paper on China’s edible oil situation in the recently concluded MPOC’s internet seminar POINTERS forecasted that China’s palm oil imports will increase by 0.6 million MT from 6.5 million MT in 2020 to 7.1 million MT in 2021. MPOC’s China’s representative at UOB Kay Hian webinar on 24 May, 2021 forecast that China’s palm oil import will maintain at 2020 level at 6.5 million MT in 2021.    

                                                               Chart 4

Conclusion

The analysis above predicted a favorable environment for China’s palm oil imports in 2021. Palm oil, being the most competitively priced oil, is projected to benefit from the country’s increasing need to import more edible oils in 2021 due to improving demand and tight edible oils supply situation. Imports of palm oil for 2021 is estimated to reach at least 2020 import volume of 6.5 million MT. Most of the increase will originate from RBD palm olein which accounts for the bulk or 60% to 70% of China’s palm oil imports. A major factor that drives higher palm oil imports for 2021 is the recovery of the country from the COVID-19 pandemic. This development helps to push up the economy and subsequently improve palm oil demand in China.   The favorable environment for edible oil imports in the country has already impacted palm oil import for January- April 2021. Within this period, the China General Administration of Customs reported that China’s palm oil imports rose by a substantial 425,100 MT or 28% to 1.9 million MT.

Prepared By Lim Teck Chaii 

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