POINTERS: African Swine Fever Recovery - Impact on China's Palm Oil Demand 2021

The development of livestock industry has been the determining factor of the demand for soybean meal in China, which subsequently dictates or influences the intensity of oilseeds crushing activities and output of soybean oil. The outbreak of African Swine Fever (ASF) started in August 2018 has caused serious impact on animal feeds demand, and significantly lowered the crushing volume especially on soybean in 2019, a drop in soybean crushing volume first seen since China put in policies to encourage local crushing in mid-90s. The lower crushing volume in 2019 lowered soybean oil output and benefited palm oil, where palm oil import charted record high of 7.66 million MT in the same year. Nevertheless, with immediate action taken and also introduction of new policies to improve the management of livestock breeding, swine sector has slowly walked out from the outbreak and witnessed recovery since mid-2020, which subsequently increased the soybean crushing volume and soybean oil output. It has no doubt that the swine sector will fully recover in 2021 (to its pre-ASF level) and continue to grow, which may see soybean oil output surge beyond its peak output recorded in 2018 level. In another word, since both RBD Palm Olein (PL) and soybean oil are substitutable with each other, the higher soybean oil output means it will affect the demand for PL and finally lower the palm oil import. Nevertheless, besides soybean oil output, there are other factors or issues have taken place and this is expected to mitigate the overall impact on palm oil demand and import in 2021, which may not be as serious as many thought.

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Questions & Answers (8) :

Anthony Yap

3 years ago

Hi Desmond; a) What is the trend of Importation of CPKO/RBDPKO figures into China first 9 months of 2021 vs previous years? b) Recently; China power crunch. Is Oleochemicals Plant in China affected? which areas/provinces mostly affected for Oleo Plant. Thus, their plants still running at 50% capacity of production? Thanks

Desmond Ng:
Hi, Anthony, import of PKO (CPKO & RBD PKO) for Jan-Sep 2021 amounted to 525,635 MT, which is 15.2% lower than the 619,855 MT imported in the same period last year. The drop could partly attributed to the lower CPKO output, and more importantly the export duty structure in Indonesia which encourage the export of more downstream products of PKO such as fatty alcohol. Most plants (regardless of which industry) were being request to only run 3-6 days from the originally 7 days in a week. And this varies throughout the various provinces or cities, and predominantly small plants were being affected the most.
3 years ago

Anthony Yap

3 years ago

Trade Agreement round 1 between USA and China; is China completed the importation of soybean from USA as per the agreement? If not, will it be give more supportive (demand) on Palm Oil prices?

Desmond Ng:
Dear Anthony, according to the trade agreement signed, China has committed to import a total value of US$43.5 billion worth of agriculture product from US in 2021, and soybean being a major exported agriculture product to China automatically became one of the major import items for China to fulfill its commitment. Nevertheless, there is no fixed volume on what is the quantity to be imported every year, as it also need to take into consideration of the supply-demand of other agriculture products between the 2 countries to decide what item(s) could be imported to fulfill the agreement, and also the value. For instance, the the bumper crop in US last September and subsequently high prices led to higher import value of US soybean by China since 4Q 2020, and total US soybean imported by China in Jan-Aug 2021 worth US$10.57 bil, far higher than US$3.79 bil recorded same period last year. Anyhow, the import of soybean in China is driven more by the local feed industry's development where the profit margin is not encouraging lately, and led to the revision of soybean crushed volume for 2021. Because of this, it is estimated that the import of palm oil will be higher in 2021 as highlighted in my PPT, and yes it has partly contributed to the support of palm oil prices this year.
3 years ago

Ng Ivy

3 years ago

Are the chinese cooking oil producers raising prices to reflect the higher edible oil prices? Are the higher raw material costs passed on to consumers?

Desmond Ng:
No, although there is no written instruction or law on the ceiling price of edible cooking oil in China, but food manufacturers in general is being made understand to not simply transfer the cost to consumer despite the sharp rise in ingredients, and this apply to cooking oil sector as well.
3 years ago

Ng Ivy

3 years ago

What is the market view on the stock reserves for edible oils and oilseeds for CHinese government? Are they releasing stocks of oilseeds for domestic crushing to calm food inflation in the country

Desmond Ng:
Yes, there were some reserve of imported soybean and soybean oil being released for tender but not in big volume, and insignificant as compared to the total soybean crushed in a year.
3 years ago

VS LEE

3 years ago

Given the importance of food security to China, I wonder whether China import frozen pork and if yes, how big is the import versus local production?

Desmond Ng:
Yes, China imports allow the import of pork. Last year, import of frozen pork amounted to 4.39 million MT, while 1.49 mil MT has been imported in the period of Jan-May 2021. The total pork consumed in China dropped to 42.7 million MT in 2020, basically due to high pork prices. Otherwise, the average annual demand for pork is approximately 55.0 mil MT.
3 years ago

WONG YQ

3 years ago

Thank you and appreciate for sharing. This is very interesting presentation with the swine industry which have significant correlation to oil and fat industry. Soybean likely protein source for the animal feeds, what's the substitute protein source had taken replaced soybean in the blueprint? Seafood based?

Desmond Ng:
Dear Wong, if you refer to the formulations shared in my presentation, you can see that the blueprint has recommended the use other oilmeals to substitute soybean meal. These oilmeals are basically those available locally which is found could be used more efficiently in term of cost and nutrients if the feed millers is guided properly. The use of seafood based feed ingredients is limited as it would be costly for this ingredient to be transported from coastal area. The main purpose of this blueprint is to reduce the reliance on import for the feed ingredients and at the same time utilize the local ingredients more efficiently.
3 years ago

Jessie Fan

3 years ago

Understand China energy crisis deepened as dozens of soybean crushing plants have been ordered to shut down and halt production amid increasing demand, rising coal prices and the goal to meet the carbon neutrality recently. Will China switch to buy more palm instead of soybean due to the curbs in power in crushing plants?Tks

Desmond Ng:
Dear Jessie, the suspension of some soybean crushing plants (mainly non-SOEs) has no doubt affected the output of soybean oil and soybean meal. Anyhow, the curbs in power supplies came coincidently with the slowdown in soybean meal demand in China, partly due to the introduction of the "Technical Blueprint on Reduction and Substitution of Corn and Soybean Meal Inclusion in Animal Feed", as well as the poor breeding margin in swine sector in last 6 months, which is expected to lower the demand growth of soybean meal in China, and hence the crushing activities. Due to these reasons, Chinese importers and traders would likely to import more palm olein in last quarter of this year, which at the same time also supported by the low stock level that need replenishment to meet the rising demand early next year for the upcoming festive season.
3 years ago

Yazid Mustafa

3 years ago

Appreciate if you can share information on China’s electricity rationing programme? Is it that the rationing goes across the whole country or only selected industries got affected? How is it going to affect palm oil import?

Desmond Ng:
Dear Mr. Yazid Mustafa, I'm afraid there is no clear electricity rationing program being announced by neither the central nor provincial government in China, and no specific industry is being picked for the suspension of power supplies. From my understanding is that each provincial or municipal government has its own mandate to assure there is sufficient power supplies but in this case, the drastic rise of fuel prices has affected the ability of each local government to ensure stable power supplies, which then came with the decision of power curbs in industry sector. Anyhow, the curb of power supplies in soybean crushing sector came at the time when the demand for soybean meal is expected to slowdown due to the poor breeding margin, and hence, the import of palm oil has been expected to rise in last quarter of this year even if there is no power curb.
3 years ago