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POINTERS 2014 MPOC
Palm Oil Internet Seminar
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Section 1: CPO Price Trend:
China's Palm Oil Import Outlook in 2018
By: Mr. Cai Neng Bin

He is the General Manager of Shanghai Pansun Company. His roles and responsibilities in the company are analyzing oilseeds and oils and fats market information, with main emphasis given on systematic data analysis and make judgement on market trading pattern. He is also able to gauge the change of medium to long market trends of agricultural products, and provides trading and hedging strategies through capturing price differences arises from logical error within markets, and between different products and months.
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The paper will first highlight the current focal points or factors influencing the oils & fats trading in the Chinese market. Subsequently, the assessment on oils & fats supply-demand balance, soybean import cost and volume (taking into consideration on the effect from US-China Trade War) and soybean oil demand and stock balance. This is then led to the effect of soybean oil and soybean meal (with latest assessment on the growth of animal protein demand) demand and subsequently the crushing activities in China.

The paper will later analyse the impact of palm oil import on the stock level in China, as well as the consequences of palm oil import margin and demand on the overall trading activities in the futures and physical markets. Last but not least, some updates on the situation of temporary state reserve rapeseed oil which has more or less being fully disposed into the market. Then, we will look at the import of rapeseed and rapeseed oil and its impact on the oils & fats market. Finally, the effect of price spread among soybean oil, rapeseed oil and palm oil on the demand will be analysed, with conclusion focusing on the highlighting the change in overall trading pattern of oils & fats in China.


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Questions & Answers (8) :
Akmal
3 months ago
With China’s current soyoil and soybean stockpile, for how many months do you think it can support China’s soyoil and soybean use comfortably before the additional 25% China impose on USA soybean import will affect the market?
Cai Neng Bin:
The current soybean and soybean oil are at 6.65 million MT and 1.45 million MT respectively. Based on the annual crushed/consumption volume of 86.3 million MT and 15.9 million MT, the stocks of soybean and soybean oil could comfortably support the demand in China for approximately 1 month. However, as some crushers anticipate that the import of soybean from Oct onward will be affected due to the drop in US soybean import, some of them are holding back their supplies to wait for a higher price, but not affecting the current price as South American soybean is still continuously arriving at China. But once the US soybean supply season coming into place in full force from October onward, the stock will be drained slowly as some importers may still trying to get more soybean from South America and also other smaller producers, while slowdown demand of soybean meal as plant protein source will also slowdown the drop in stock of soybean.
3 months ago
Azwan Fitri Bin Zainal Abidin
3 months ago
It's been a long period of time that PO market has been affected with SBO driven (output/demand/supply). Please enlighten me on how these two different commodities that have different characteristics and different specific purposes would have inter-correlation?
Cai Neng Bin:
The balance between supply and demand of palm oil and soybean oil is more affected by price spreads, and is also related to seasonal supply and demand of these 2 types of oils. At present, the monthly consumption of palm oil in China is relatively stable, and there are obvious differences in the demand from food sector during different season. China's soybean oil supply is mainly through crushing imported beans, and prices fluctuate according to soybean import costs, crushing margin, price differences between North and South American soybean, and seasonal demand for soybean meal. The decrease of soybean- palm oil price spreads is mainly related to palm oil stocks, and the expansion of the spread mainly due to the stock level of soybean oil. With China's soybean imports slowing down, the soybean oil supply and demand balance will be changed and possibly widen, and hence, the narrowing of price spread between soybean and palm oil will then be relying on the slowdown in palm oil production.
3 months ago
Azwan Fitri Bin Zainal Abidin
3 months ago
Hi Sir,

1. What is your possible gauge on the outcome of Oil Palm industry between Malaysia - China in view of Malaysia's Prime Minister (Tun Mahathir) visit to China's President (Xi Jinping) which scheduled in near future?


Cai Neng Bin:
The meetings between the two governments are more about trade and mutual benefit, and China is expected to trade more for export of technology (speed train etc) by increasing import. Traditional China mainly imports palm oil. Enterprises take profit into account when purchasing. Import cost advantage greatly affects the import share between Indonesia and Malaysia. Consumption of palm oil in China is relatively stable, and there is more room for increasing consumption in PME and other industries products. However, this needs the support of national policies or subsidy policies.
3 months ago
Anthony Yap
3 months ago
Hi Mr Cai; Based on your Importation figures of PME to china 700-750K mt, what is the ratio (%) from Indonesia and Malaysia?
Cai Neng Bin:
These 700-750K MT basically are all from Indonesia.
3 months ago
Nur Fairuz
3 months ago
Dalian commodity exchange has a peculiar trading behavior. Trading only focus on a few active months. Do you have an explanations for this type of behaviour? What is your view on US/Yuan exchange rate outlook? Any comments on how the exchange rate will affect China’s palm oil imports?
Cai Neng Bin:

There are many products in China's futures market. All these while, the main trading mode has been formed mainly on several trading contracts on selected months. This allow the flexibility of capital trading and industry players to manage on their position, and the adjusting the non-main contract through the spot base difference.

The Federal Reserve withdrew its economy stimulus policy, where increase of interest inevitably led to the appreciation of US dollar. At the same time, China's domestic economic situation is under restructuring exercise, where it experiences some challenges in overall macroeconomic situation. On top of this, the China-US trade war increases China's export pressure, as although the depreciation of the RMB encourage more export, but the government does not want its currency to devalue too fast, where we can see that the government's central bank is taking measure when its USD-RMB rate dropped to the psychological level of RMB7 recently.

The depreciation of the RMB exchange rate is unfavorable to the import for China. The moderate easing of monetary policy will increase the bullish sentiment of the commodity market, and the import of palm oil is based mainly on the futures-physical spread margin, depending also on whether importer lock-in their forex rate. We also see that the Ringgit's exchange rate is also on devaluation trend, as from the trade point of view, FOB price changes will have ultimate impact on the overall import cost.


3 months ago
Sharmene
3 months ago
On China’s biodiesel, why is it your country oleochemical producer is not producing for your country requirement? Reuters recently reported that China is expected to raise diesel price by 260 yuan per MT to around USD39 per MT. How is the market responding to the development.
Cai Neng Bin:
Dear Sharmene, before I can answer your question, may I know whether there is typo error on your question as raising RMB260/MT (USD38/MT at USD1=RMB6.80) would definitely bring the diesel price beyond USD39/MT? Thank you.
3 months ago
Sharmene:
I got from news flash of Reuters. Anyway, my other question is why China oleochemicals industry do not produce PME.
3 months ago
Cai Neng Bin:
Supply of oils & fats in China mainly relies on import. Hence, there is a great uncertainty in the cost control of the raw materials and the stability of the supply, and there are some limitations in the consuming market as well. The consumption of biodiesel needs more policy support, and currently, biodiesel is still a small variant in China’s commodity market, and it cannot form a stable industrial products chain, so the supply of biodiesel mainly based importation.
3 months ago
Anthony Yap
3 months ago
Hi 蔡先生; 你好; a) As US-CHINA trade war started; where can China find the Gap deficit of Soybean importation to be filled -随着美中贸易战的开始; 中国哪里可以找到填补大豆进口的缺口? b) Others measure to be taken by China on the deficit of Soybean Gap; other than asking Local farmer to plant more soybean? -除了要求当地农民种植更多大豆?还有其他措施吗? c) What was the Palm Biodiesel (PME) import figures into China for First half of the Year 2018? -2018年上半年进入中国的棕榈生物柴油(PME)进口数据是多少? d) What are the issue faced after PME been imported into China , refer to item C above? -d)棕榈生物柴油(PME进口到中国后面临的问题是什么? e) Is the PO-GO spread by discounted by almost USD100/MT good enough to spur the PME demand in China? -PO-GO的价差几乎是100美元/吨,足以刺激中国对PME的需求吗?
Cai Neng Bin:
If China does not import US soybean due to the current US-China trade war, the purchase of soybeans from non-US countries will lead to changes in the global soybean trade logistics. At present, the procurement can be maintained until November, from December to next year before the Spring Festival there will be soybean shortage.

In order to reduce the supply gap, China's official media said the import of soybean could be reduced by 10 million MT by lowering the feed protein content and importing more sunflower seeds, rapeseed and palm kernel meal. Although traders doubt about this measure, they realized that policy intervention might be higher than economic adjustment. To China's domestic soybean production, the government is also guiding some of the corn planting area to change to soybean planting. While this is restricted by the available arable land, so if it cannot effectively improve the yield, the overall room of improvement is limited. It is expected that China's soybean sown area reached 8.47 million hectares in 2018, an increase of 8.8% compared with the previous year. According to the trend of yield, the soybean production in China will reach 15.8 million MT this year, 1.25 million MT more than the previous year, and the increase has limited impact in solving the demand gap. The market is also discussing the possibility of developing soybean acreage by China in Russia, which involves inter-country issues with greater policy uncertainty and persistence in doubt. In the first half of the year, China showed a better PME import profit, a large increase in the volume of shipping, similar to the 2014 situation. The main import enterprises for China are PetroChina and individual traders, where shipments coming in mainly in Jul-Sep period, import volume of about 700,000-750,000 MT. Since RMB has depreciated from RMB6.3/USD during the period when the earlier shipments were booked to more than 6.8, there is a higher risk of losing on the exchange rate. In the near future, PME also gives better profits, but it is subject to the PME physical characteristics. In the summer, PME is mainly used in large machinery and barges in the southern region which required large volume of diesel, and demand will slow down in later part of the year to the weather condition. It is expected that the import of PME in China is about 800,000 MT in the whole year of 2018. In long run, PME imports are more dependent on import profit and market behaviour, restricted by the regional and seasonal demand, and it is difficult to form a steady and sustainable demand in the short term. The trend of crude oil price also adds a lot of uncertainty. In terms of government policy formulation, the government needs to consider the influence of trade relations among countries more.


3 months ago
GEO
3 months ago
Dear sir, what will be the estimates palm oil imports from MY and Indon for 2nd half of the year?
Cai Neng Bin:
Hi, GEO. Thanks for your question. My estimation is that the total import of palm oil in China for 2018 would be around 5.2 million MT with 3.6 million of RBD Palm Olein (PL) and 1.6 million of RBD Palm Stearin (PS). The import share of PL between Malaysia and Indonesia would be 36% and 64%, while import share of PS between Malaysia and Indonesia would be 40% and 60%.
3 months ago
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