China’s Vegetable Oil Outlook and Palm Oil Situation

The rapid development of China’s economy and its implication on people’s living standards has been a catalyst in the growing consumption of edible vegetable oils. According to the China Bureau of Statistics, the per capita edible vegetable oil consumption has increased from 7.7 kg in 1996 to 9.8 kg in 2019. Soybean oil is the most consumed edible oil followed by palm oil, rapeseed oil, and peanut oil. These 4 major oils account for approximately 90% of the total consumption in China. While the household consumer sector prefers rapeseed oil and soybean oil as their preferred choice, the commercial and food industry sector uses more palm oil for its cost-effective and versatile nature. The health-conscious segments of the Chinese population are more inclined towards using olive oil, corn oil, and sunflower seed oil.

According to USDA, the total vegetable oil production for MY20/21 is forecast at 26.1 MMT compared to 25.3 MMT in MY19/20 based on higher soybean crush. The increase in hog production after its recovery from African Swine Fever is the major factor for the increase. A steady increase in the protein meal demand for animal feed is driving more import of soybean and promoting more crushing activities. However, overall vegetable oil consumption is estimated to increase less than 1 percent compared to 2019 due to the COVID-19 outbreak, which took a toll on the demand for the HORECA sector in the first half of 2020 when consumers avoided eating out and restaurants. The supply surplus of vegetable oil is anticipated to drop the amount of vegetable oil imported into China. Palm oil is expected to drop almost 1.2 Million MT to 6.4 Million MT in 2020 compared to almost 7.6 Million MT in 2019.

Alternatively, China’s food processing industry which primarily uses palm oil is displaying a positive growth trend. Bakery revenue increased 11% to RMB231.7 billion (USD33.1 billion) in 2019 (USDA), and expected to continue for the next five years due increase in the purchasing power and more westernized cultural shift. Revenue in the Confectionery & Snacks segment amounts to US$109,889m in 2019 The market is expected to grow annually by 4.1% (CAGR 2020-2025). Statista survey found that the consumption of bread and bakery products has increased from 38% in 2019 to 43% in the 1st quarter of 2020. Besides, a steady recovery of instant noodle production which uses palm oil as one of its main ingredients has shown an 11.5% increase in sales in a y-o-y basis 2020 according to Nielsen research firm. On top of that, Palm oil is also widely blended with other oils in retail markets and restaurants due to its price advantage. Overall, the drop is the vegetable oil import to China is inevitable due to the huge impact in HORECA sector but the growth of other segments that use palm oil will cushion its impact of palm oil import drop.

Prepared By:  Theventharan Batumalai

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