by Agrimoney.com
China cannot keep up its low pace of oilseed imports, signalling better times ahead for palm oil prices – with the country potentially facing an enhanced need for soybean purchases too.
Standard Chartered analyst Abah Ofon flagged an end to the weak rates of Chinese palm oil imports, which fell 37% month-on-month in January and a further 20% in February, once alternative supplies from state reserves run dry.
China, which vies with India as top buyer of vegetable oils - and is undispute leader in soybean imports - has capped prices of items including edible oils in a battle against inflation, which central bank governor Yi Gang on Wednesday said may yet require further "active measures" to control.
To assist vegetable oil and oilseed processors, left facing negative margins, the government has unveiled the release at a discount of agricultural commodities from state reserves, including 1.5m-2m tonnes of rapeseed oil, of which 1.2m tonnes has already been sold, and 3m tonnes of soybeans.
"Rapeseed oil reserves were estimated at 2m-3m tonnes before the start of the sales, so current stocks are likely to be low," Mr Ofon said.
"With limited soybean and rapeseed acreage anticipated over the coming season, China may have little choice but to turn to imports."
'Resurgent demand'
Furthermore, conversations with traders had suggested that China's palm oil demand "will be boosted by the onset of warmer weather", which is a particularly key factor for the vegetable oil, which solidifies at a higher temperature than rapeseed oil or soyoil, and so is less use in, for example, in biodiesel in the winter.
In fact, stronger energy prices were another reason to expect higher palm oil prices, which are set to rise from below 3,300 ringgit a tonne in Kuala Lumpur to average 3,700 ringgit a tonne in the July-to-September period.
While "bearish events", also including strong South American soybean production and recovering Indonesian and Malaysian palm oil output, would "dominate" the second quarter, "our overall outlook remains bullish in anticipation of resurgent demand from China and India", Mr Ofon said.
'May backfire'
The comments follow a caution from Oil World, the influential analysis group, that China's moves to stem domestic prices of edible oils may enhance import needs ahead, by dissuading growers from planting soybeans.
"The Chinese government's policy of imposing price limits on vegetable oils, which also pressured domestic soybean prices ... may backfire later this year by curbing domestic soybean output much below requirements," Oil World said.
On the Dalian exchange, the benchmark January soybean contract closed down 1.1% at 4,424 yuan a tonne on Wednesday, down some 7% from a high three weeks ago, and despite apparently continuing rises in food prices in the broader economy.
The group has also warned over the long-term efficacy of state soybean sales, given that Chinese processors consume some 4.0m-4.5m tonnes a month.
"Subsidised soybean sales of 3m tonnes can alleviate the situation for Chinese crushers only temporarily."
The comments follow continued concerns over China's demand for oilseeds, following a series of cancellations of soybean import shipments.
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