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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 2019
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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As soybean production continue to grow and palm oil stock level remain high, the supply of global oils & fats is still in surplus. At the same time, US-China trade war affected the purchase volume and rhythm of soybean, and formula adjustment in animal feeds as well as the increase import of other oilmeals has changed China structural demand for plant protein. The African swine fever which took place in second half of 2018 also suppressed the scale of livestock expansion, and this resulted in the slowdown in demand for plant protein due to the drop in livestock number.

On the other hand, the expected drop in soybean crushing activities led to the decline in soybean oil supply in China and this resulted in increased oils & fats import. However, the price which is the decisive factor leading to the import is still being strongly influenced by the macroeconomic situation as well as the government policies issued in China. All in all, the supply-demand of palm oil is rather stable in China and crude mineral oil prices will affect the demand for biodiesel, and of course the oils & fats prices. The stock level of oils & fats is expected to the drop due to the structural change in supply-demand balance, and palm oil import in 2019 will be stable.


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Questions & Answers (7) :
HCLeow
4 months ago
Dear Mr Cai, what was the edible oil demand growth rate for China for last 5 years and what would be the growth rate you are forecasting for next 5 years? In your view, how big the volume of soybean oil market that can be replaced by palm oil in China? Given large volume of soybean oil is used in consumer pack cooking oil but palm oil is not so widely use for this segment? Thank you.
Cai Neng Bin:
Taking into consideration of the change in stock, the average growth of edible oil demand for last 5 years was at 2%-3%. In next 5 years, the growth will still be at 2%-3% taken into consideration of the macroeconomic situation as well as oils & fats supply. Demand for palm oil in China is rather stable, the growth in palm oil demand required high stock level as a support. With high stock level, the discount of PO against SBO will widen and the best period for higher substitution using PO. China does not have brands carry pure olein consumer packed cooking oil, but more in mid-packed and blended oil form in penetrating the consumer or catering market. This has certainly limited the growth potential of palm oil demand.
4 months ago
YAP YAU KOONG
4 months ago
What are the actions Malaysia can take to attract more buyers from China for Malaysian Palm Oil?
Cai Neng Bin:
Price advantage is the main factor in competition with Indonesia. Besides that improving quality, shorten logistics times, and park part of the inventory from the origin to China would also help in improving the trade. At the government level, strengthening trade cooperation and purchasing more palm oil which will raise the stock level in China and subsequently increase the consumption.
4 months ago
Edmund Yong
4 months ago
1)中国目前港口棕榈油的库存是多少? 2)您对第二季度人民币对美金的汇率走市和看法? 3) 中国Palm Biodiesel 的进口量从马来西亚和印尼的对比率是多少?
Cai Neng Bin:
1)As of 15 Feb, the stock level of palm oil in China was at 849,000 MT, is at 2-year high level. 2) As for the exchange rate, since US rate hike is put on hold, and without any new issue appearing, RMB exchange rate will hovering within a narrow range, very low chance of further depreciation. 3) China importer 750,000 MT biodiesel in 2018, of which 650,000 from Indonesia (86.5%) and Malaysia shipped 70,000 MT (9.4%)
4 months ago
Sharmene
4 months ago
Traditionally, why China choose to crush soybean for its meals rather than relying on imports? Would the crushing activities and the country’s oils and fats dynamics be affected by the country’s new environmental regulation policy?
Cai Neng Bin:
The crushing of soybean locally is to 1) create value addition & profit for local market, 2) provide job opportunity. Most importantly, the import duty of soybean is at 3% while soybean oil and soybean meal are at 9% and 5% respectively. Impact on the environmental policies has little impact on crushing industry.
4 months ago
Sunil
4 months ago
When do you expect ASF problem will be brought under control and soymeal demand to stablise ? How much sunoil is expected to be imported this looking at the price competitiveness today with soyoil.
Cai Neng Bin:
The problem of African Swine Fever has existed for a long time in China. It has been obviously under control by comprehensive improvement in the early days, and the transportation between supply and marketing areas has been gradually increased. ASF increases the cost of breeding and prevents the expansion of breeding scale. The decrease of sows can lead to the decrease of supply of piglet in the later period. The expected reduction in meal demand has been basically digested by the market where required volume has been traded. The demand for soybean meal is also related to DDGS supply. At present, the consumption channels of sunflower seed oil in China is rather limited. If increase imports will lead to rapid deterioration of profits, the current import of sunflower seed oil in China is at a relative balance level of 700,000 MT, and the import volume is expected to be around 700,000 MT this year as well.
4 months ago
Anthony Yap
4 months ago
蔡先生; 你好; a) 您能否提供2018年第四季度生物柴油(PME)进口到中国的数据?跟第三季度对比有什么趋势变化吗?请详细说明。 Can you update the Biodiesel (PME) importation into China on Q4’2018? Any significant changes compared to Q3’2018? b) 在目前Pogo 价格美金-77左右,对PME 的进口量有影响?进口量会不会再第二季回弹呢?因为夏天已经到了。 As PoGo about –USD77/MT now; PME importation into china will be affected and any chance of recovery? c) 有关中国2019年棕榈油的价格和趋势,我们需要关注哪一方面的因素? What are the key factors to monitor Palm Oils prices on 2019 from China perspective? 谢谢
Cai Neng Bin:
Biodiesel import in Q3 and Q4 were 516,464 MT and 69,356 MT respectively. In terms of demand, PME is more suitable to be used in summer, which is also the peak period for importation, and drop in Q4 due to the arrival of cold weather. In terms of import margin, there is a lot of uncertainty for the importation of PME and in this case, it was the high import margin appeared in early of 2018, which driven the import in Q3. Although there was import margin in Q4 but as weather turned colder, the interest to bring in the PME not as high as it was in Q3. Palm oil price in China in 2019 will adjusted according to the stock level in China and also physical price at the country of origin. For long term, the import will based on whether there is margin comparing the DCE price against the physical. Weather condition and SBO-PO price difference will affect PO demand, and through the estimation in stock level’s adjustment will affect forward month supply-demand balance. Physical and forward month prices at producing countries also affect the rhythm of shipments booking. On top of this, forex, adjustment of duties, relaxing of macro-economy policies also among other reasons affecting the futures import of palm oil.
4 months ago
Yazid Mustafa
4 months ago
How is the US-China trade war driving the spread between local palm and soybean oil prices? Based on your analysis, how big the spread should be to spark local imports of palm oil? Why is China state reserve is so quiet these days? The recent purchase of soybean exports from US despite high tariff is it to build the state reserve stocks of soybean?
Cai Neng Bin:
The Sino-US trade war has affected soybean import expectations. In the first half of the year, China's soybean shortage is not significant. Soybean oil inventory dropped significantly because of the decline in demand for soybean meal, resulting in a reduction in soybean crushing. The price difference between grade 1 soybean oil and RBD Palm Olein in Eastern China was more than RMB1000/MT, and the price difference between soybean oil and RBD Palm Olein on DCE May contract is more than RMB900/MT.

At present, China's palm oil stock is about 700,000 MT, which is enough to consume until the end of March. While the price of CNF shipment in April is on the high side, purchase will be based on supply-demand situation. At present, the temperature is not conducive for palm oil consumption, which will not able to drive the demand for palm olein. Hence, there is limited space for reduction of price difference between SBO and Olein in short term (because olein price will remain low).

Since Sino-US trade dispute has been in repeated negotiations, State-owned enterprises (COFCO and Sinograin) have expressed their intention to buy a small amount of soybeans. However, before the tariffs between China and the United States are not finalized, policy risks still restrict commercial soybean purchases.

Soybean purchased by China mainly to supplement the domestic supply. Soybean purchased by COFCO is mainly used for commercial crushing, while soybean purchased by Sinograin has greater flexibility, not all of which go into the national reserve.


4 months ago
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