BEIJING: The upward race for palm oil will face more headwinds next year as the main importer China buys increasing quantities of soybeans to boost the massive expansion of the country’s pig industry.
The world’s largest producer and consumer of pig meat is gathering unprecedented quantities of soybeans and corn on the global markets to feed local hog herds who are recovering after being devastated by African swine fever.
Cracking beans not only produces a meal, which is an ingredient of livestock feed, but also oil, the palm’s biggest competitor in the food and biofuel industry. This increased supply now threatens China’s purchases of palm oil, just two years after it rose to a record high when a trade war between the United States and China limited bean imports.
“The additional soy oil supplies will replace imports of palm oil and other edible oils,” said Shi Lihong, an analyst at China Futures.
The recovery in pig numbers will boost demand for soy flour by 8% to 10%, and push bean imports to a new record high, she said, adding that overseas purchases of palm oil by China, the second largest importer, will likely drop to three – an overall decline in 2020-21.
Palm oil was also very expensive compared to soybean oil in global markets, trading around par for a while in the last quarter of last year against the usual discount, discouraging buying by global buyers.
Standard palm oil futures doubled from their lowest level in May to a 10-year high this month on the back of shrinking supplies in Malaysia, the second largest producer. Soybean oil is down, up only 70% over the same period.
The rise has shrunk profit margins for buyers, and may cut Chinese imports to 400,000-500,000 tons per month in the first quarter from 650,000 to 750,000 tons in October and December, according to the China National Grain and Oil Information Center. It said purchases could drop 8.8 percent to 6.2 million tons in 2020-2021.
Ivy Ng, head of research at CGS-CIMB in Kuala Lumpur, said that in addition to high prices and export taxes that may prevent heavy purchase, China has completed restocking for the Lunar New Year. Usually, in mid-February, the festival leads to an increased consumption of palm oil for frying dumplings and spring rolls.
“Judging by the quantities of palm oil that were purchased at the end of last year, they could have gotten enough for them during the Chinese New Year, so they won’t buy now,” she said.
“Buyers may restock in March or April, but that will depend on the purchase during the holiday season and how much they will need to replenish the reserves.”