POINTERS: China – Outlook for Palm Oil with Higher Soyabean Import Expected in 2018

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Questions & Answers (6) :

HCLeow

6 years ago

Dear Mr Cai, I have the following questions: (1) May I know what is the utilization rate of soybean crushing industry and what was the average utilization rate for 2015, 2016 and 2017? (2) Any idea what are the potential upcoming soybean crushing capacity by foreign investors after China government open up the market to foreign investment again? (3) How much more market share can soybean oil take from palm oil in China? (4) Possible to share the level of SBO & RSO reserves level as at end-2017? What would be the ideal level for China government to stop the auction? Thank you.

Cai Neng Bin:
The average operation rate of soybean crushing is observed based on marketing years (Oct to Sep). Hence, the operation rate was 58% in 14/15, 60% in 15/16, 64% in 16/17, and 64% forecasted for 17/18 year. China’s soybean crush capacity expansion has entered a stable period, with an annual growth rate of 3%-4%. Basically, the early stages of production capacity expansion and foreign investment layout have basically been completed, and the later expansion of production capacity is more in the optimization of regional market structure. With the slowing down of capacity expansion, the demand for soybean meal remains increasing steadily, the operation rate increased slightly over the years. In long term, it is forecasted the soybean oil market share to increase in China, while palm oil demand is basically stable. It is difficult for soybean oil to further taking away palm oil share, and any encroachment of market share by soybean oil on palm oil depends on the spread between soybean oil and palm oil and also the import intentions among the importers. China has two level of reserve with one at state level and the other at regional level, and it is difficult to estimate the reserve kept by the regional or local government. Currently, government has slightly more than 100,000 MT of soybean oil and less than 300,000 MT of rapeseed oil reserve (as of end 2017). With the auctions taken place up-to-date in 2018, an estimated 150,000 MT of rapeseed oil has been auctioned, with the auction of rapeseed oil continued and soybean oil auctions being initiated after Chinese New Year holiday. The main purpose of the auction is to clear the reserve and cut down unnecessary cost of the government, and the starting price is always lower than the market price so as to promote the interest of these reserve being taken up by buyers.
6 years ago

Sathia Varqa

6 years ago

Dear Mr. Cai Neng Bin You said rapeseed oil auction from reserves is 1.40 million tons in 2017-18. Is this over or will take place in the future? Will there be any soybean oil stock released from stocks?

Cai Neng Bin:
The latest round of auction of state reserve rapeseed oil has been re-initiated since 5 Jan 2018 and is auctioning at the rate of average 50,000 MT per week. Besides that 1 million MT out of the 1.4 million MT reserve carried forward from the end of the last auction activities was being directly sold to 5 major companies in China in Oct 2017. Hence, by the rate of the volume being auctioned at this round, the state reserve rapeseed oil will be cleared latest by end Feb 2018. There is no news on any intention for Chinese government to release the state reserve soybean stock at the moment.
6 years ago

Akmal

6 years ago

Just to clarify some claims you made in your paper. In your paper, you say that weather and production condition is reflected on the premium/discount of North and South American soybean contract. In commodity trading, this is not the normal way that trade is made. Irrespective of how much a country produce, I suppose the beans produce will also be sold at roughly the same international price. Can you explain why in China’s case it is different. The other question is why South America extends its soybean supply period amid increasing global soybean supply?

Cai Neng Bin:
The contrast between northern and southern hemisphere’s weather is being reflected on the planting period differences between these 2 hemispheres, hence supply and demand cycle of new soybean is also different, but is a complementary relationship in the global supply of soybeans, which effectively ensures a continuous supply of China soybean imports. The fluctuation of soybean price is more related to the output, where weather has greater uncertainty impact on output, which closely associated to planting progress, planting area, yield, good crop rate and other stages. Normally, higher price premium due to weather condition is witnessed in the market during an important planting stage. With the output more or less decided, the market focus will shift to the demand factor. The changes of China’s purchase volume affects soybean prices, and China will also seek the best to squeeze profits on the prices between the North and South American soybeans, as well as new and old soybeans. The current global soybean led to ample supply, and subsequently prolonged the sales cycle of U.S. soybean and South American and competition intensifies further at the overlapping of both sales period.
6 years ago

Anthony Yap

6 years ago

Mr Cai /菜先生; 你好; a）请提供我们关于棕榈油（所有类型）和大豆油的最新进口税和增值税吗？ b）什么棕榈油; 需要进口许可证吗？ c）随着中国实施E10; 会影响棕榈油的进口吗？ d）中国何时可以考虑使用棕榈生物柴油（PME）进行混合？ e）为什么中国不考虑在华南地区使用PME？叶庆谋先生(提问题) a) Please update us on the latest import duty & VAT of Palm Oil (all types) & Soybean Oil? b) Any Import permit needed? c) With China implentation of E10; will it impact on importation of Palm Oil? d) When can China consider using Palm Biodiesel (PME) for the blending? e) Why China not considering using PME for it southern region?

Cai Neng Bin:
Currently, import duties and value-added tax of soybean oil are 9% and 11% respectively. As for palm oil, CPO and RBD Palm Olein both being imposed 9% import duty and 11% VAT. As for RBD Palm Stearin, those with melting point at 44-49C attract 8% import duty and 11% VAT, while those with MP of 50-56C attract 2% import duty and 11% VAT. Other palm fractions fall under the HS Code of 1511.9090 (including RBD Palm Oil) are imposed 9% import duty and 17% VAT. There is still import license required for the importation of palm oil, but no quota limit or quantitative restriction. The implementation of E10 in China is mainly concerned with environmental protection, production and processing situation of corn in China, but the blend of ethanol and petrol has been actually used in China (in selected provinces) for many years. As for biodiesel, it is still at the stage of trial in limited areas/regions, but there is no clear policy to move forward. PME processing profit and practical characteristics do not support the active import by companies. At present, the import of palm oil in China is mainly concentrated in RBD Palm Olein and RBD Palm Stearin, and the import of CPO is very small. The import of palm oil for PME processing cannot see the driving force at present. Based on the full reliance on importation to support the use of PME in China, the pace of biodiesel usage will not be moving fast at this juncture. Basically, the demand and interest on using PME is very much depend on the government’s import policy and import profits, and it will have little impact on palm oil demand in short term.
6 years ago

Nur Fairuz

6 years ago

China has exempted the 11% value-added tax on imports of distillers dried grains (DDGS) from Dec 20, 2017. Would this favour higher usage of DDGS and reduced usage of soymeal? Would this development led to lower soybean crushing this coming year? Can palm oil imports benefits from the development? For your comments.

Cai Neng Bin:
Since December 20, 2017, Chinese government has exempted the VAT for DDGS upon import, but other import tariffs are still valid. China has levied anti-dumping duties on the DDGS of the United States from January 12, 2017 at 42.2%-53.7%. The anti-subsidy duty was also being raised to 11.2%-12%, effective for 5 years. As such, under the punitive "double counter" tariff policy, the import DDGS still has no price advantage over the domestic DDGS. Unless the high "double counter" punitive tariffs are being revised downward or eliminated, the import of DDGS will remain low. At the same time, due to the active corn destocking activities at this moment, the operation rate of domestic alcohol plants has increased, and the supply of domestic DDGS is sufficient. From the view of feed consumption, soybean meal is still fetching the highest value against cost as compared to other oilmeals or substitutes, so it is difficult to make the feedmillers to switch. Although it is known that DDGS and plant protein are close substitutes, but this is only more towards other oilmeals than soybean meal. Hence, the impact of the total consumption level on soybean meal is limited, and the effect of soybean crushing activities towards soybean oil supply is even lesser. At present, soybean oil is a by-product of soybean crushing activities in China, and the supply of oils most also take into consideration the supply-demand balance of rapeseed oil, palm oil and other oils. Import and consumption of palm oil will remain depending more on import profit, especially on the discount of palm oil against soybean oil price which is the main factors influencing the demand in local market.
6 years ago

Nur Fairuz

6 years ago

As of Jan. 1, 2018, US soybean shipments arriving at Chinese ports containing up to 1 per cent of foreign material would be expedited while shipments with more than 1 percent will be held back for testing. Reuters reported that about 50% of US soybean exported to China has more than 1% impurities. How is this new regulation going to affect China’s soybean import? Do you think that it will slow down soybean import and create more opportunities for higher palm oil imports to China?

Cai Neng Bin:
According to the agreement reached between quality inspection departments of China and the U.S., the systematic quality management methods will begin checking from the soybean farm, including the United States export terminal, and follows up to receiving Chinese ports, where the United States Department of Agriculture will carry out sampling and analysis of impurities in U.S. soybean cargoes, in order to monitor the weed or seeds contents in bulk and container shipments to China. If it is found with more than 1% impurity in the soybean cargo, a statement of "the impurity content of more than 1% goods” will be officially stated in the phytosanitary certificate to inform China. The China Administration of Quality Supervision, Inspection and Quarantine also agreed to accelerate the clearance of soybean cargo contains less than 1% impurity, which includes all the quarantine measures such as inspection, cleaning, processing or other protective measures. China government also ensure that this measure will only be applicable to the 2018 new crop of US until US has fully establish a series of administrative measure on this new policy. U.S. soybean exports to China before this will not be interrupted, including those found with more than 1% impurities in soybean. Anyhow, the implementation of the new import standard of 1% impurity rate will lower the competitiveness of U.S. soybean exports and put pressure on the market price, because the cleaning of impurity will led to additional time and monetary resource to be put in where import cycle of US soybean will be prolonged and additional cost for the cleaning of impurities in the soybean. In the current context of ample global soybean supply, Chinese buyers would have more time to put their orders on soybeans as compared to the past. If there is no outbreak takes place in the livestock industry, such change in import policy would not disturb the overall consumption of soybean for the whole year, as soybean meal demand is expected to continuously grow, and soybean imports will continue to increase.
6 years ago