POINTERS: Supply & Demand of China Oils & Fats in 2H2020 at the back of Further Recovery of Swine Sector and Covid-19

- Ample global soybean supplies due to increase in production.
- China's soybean import increased, with Brazil's soybean accounted for biggest share.
- China and the United States signed a trade agreement, and China increased its purchases of soybeans, but the progress was still limited by some factors.
- The output of soybean in China is slowly increasing due to better profit against planting corn.
- Affected by epidemic situation and political factors, the stability of soybean supply chain still requires continuous attention.

- Swine breeding numbers continued to improve due to policies supports.
- The demand for plant protein was restored and increased, and led to higher soybean crushing activities.
- China's soybean crushing is greatly affected by the demand for livestock industry, as well as the pace of soybean arrival.

- The covid-19 epidemic has a significant impact on oils & fats consumption in China for certain period, with the biggest impact on soybean oil.
- Fallen crude oil price affected China's consumption of palm based biodiesel, but palm oil consumption in food sector remained stable.
- While rapeseed imports are restricted, but direct rapeseed oil imports remain at a high level.
- Evaluation of oils & fats consumption in China will be given.
- With the increase of oils & fats import and soybean crushing, China's oil stock began to rebuild.

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Questions & Answers (2) :

Jacquelyn Yow

4 years ago

Hi Mr Cai, 1. Beside the lower palm oil based biodiesel demand in China, can you further elaborate why is the interest for China to rebuild palm oil stock is not strong (referring to slide 17). 2. Can you also share with us the situation of the palm oil inventory level at the buyer end instead of major ports. Thank you.

Cai Neng Bin:
1. Beside the lower palm oil based biodiesel demand in China, can you further elaborate why is the interest for China to rebuild palm oil stock is not strong (referring to slide 17). Import margin of palm oil in China is being lock-in through hedging, and traders and fund investment players will only make profits in the delivery in futures, which then promote a large volume of orders. On the other hand, the factory purchases and arranges the import according to the production plan. At present, the price structure of the producing countries is high in current and low in forward month contract, and currently the market price is at a discount against landed cost, so the intermediate traders and investment players have no enthusiasm for import, while the factory will only purchase on demand, which leads to limited new shipment orders in China and which is basically sufficient inventory for current use. At present, China's inventory level is not high, and the high spot price basis has also prompted the factory to increase internal procurement, but again it is mainly reflected in the demand for production planning, which has led to a rather small order of imports that make profits through hedging. This year, the price gap of China's soybean-palm oil has also been greatly reduced, the demand for biodiesel has also been greatly reduced, and the decrease of liquidity has also led to the reduction of the import among the intermediate traders, leading poor interest to the replenishment of palm oil in China in Q3. 2. Can you also share with us the situation of the palm oil inventory level at the buyer end instead of major ports. China's palm oil consumption mainly depends on the purchase demand of factories. At present, China's palm oil final consumption is relatively concentrated in Wilmar, COFCO and other enterprises due to their large refining and downstream capacities. Factories will evaluate the procurement, based on the comparison of domestic spot price, futures delivery and direct import, and adopt mainly the hand-to-mouth strategy under the current low in near and high in forward month price market situation. In the case of relatively tight inventory, the factory stock rarely enters the trade market. At present, the inventory of palm oil stored in the main ports has actually included the factory inventory. The market transaction pays more attention to the comparison between the factory procurement and the actual volume available for circulation in the current market, where the overall gap between factory demand and supplies is narrowing.
4 years ago

Melody Loke

4 years ago

Can you comment on the dispute between China and US over Hong Kong new security law from the angle of China imports of beans from US. In your slide 17, your slide title reads “Palm Oil stock is low but the intention to rebuild stock is not strong. Can you explain why low palm oil inventory in this situation do not drive high intention to rebuild it stocks.

Cai Neng Bin:
The decline of crude oil price leads to the decrease of biodiesel consumption, and palm oil is mainly consumed for food. The covid-19 epidemic has repeatedly increased the uncertainty of fluctuation in demand at latter part of the year. At present, the price difference structure of palm oil, which is high at near month and high in forward month contracts, is also unfavourable for physical import, and the poor import margin also leads to the decline of import enthusiasm. The market is more willing to adjust the supply and demand of physical market through the adjustment of high basis difference. In the third quarter, China had some shipping orders, but the short-term export data of the production area was good in the peak consumption season, so it doesn�t offer good import margin. The market in tight balance led to a slow increase in inventory. The traditional fourth quarter is the window period for China's peak import and inventory building at the end of the year. No comment on question related to political issue.
4 years ago