POINTERS: Influence of China & India on Palm Oil Price Direction in 2017

Like all commodities, the supply and demand scenario influences the decision making process of the market which in turn dictates the price movements of the said commodities.

More so if the decision making process is determined by major producing and consuming countries of the said commodities.

For palm oil, it is no different. Trading and marketing of palm oil by Indonesia and Malaysia, the two largest global producers of palm oil, are very much influenced by its supply availability and the market demand for the products especially from major importing countries like India and China which influence palm oil price direction.

Knowing and understanding factors such as oils & fats situation in these producing and consuming countries are crucial for the decision making process and influences supply and demand for crude palm oil (CPO) and palm products and its prices.

The ability to be well informed improves the decision making process, reduces and mitigates risk based on unfounded rumours and news.

This presentation addresses influencing factors that dictate palm oil prices from major importing countries; India and China.

The outline of the presentation consists of oils & fats situation in these countries, the analysis of the relationship between palm oil demand and the possible direction and projection of palm oil prices for the first half of 2017.

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Questions & Answers (2) :

Yudha Gautama

6 years ago

Dear Mr Faudzy and/or Ms Rina, Thank you for the materials. For India, The Rupee demonetization has affected India CPO import for the last couple of months. Do you know if the situation has normalized? If not, when do you expect import recovery from the impact of demonetization? For China, you mentioned in the slides that the state reserve rapeseed oil stock was at 2.27mn at the end of 2016. Is the Chinese government still releasing rapeseed oil this year and how long is it estimated to last? Do you know their floor limit for the amount of strategic rapeseed oil reserve that they would like to maintain? Thank you very much in advance.

Faudzy Asrafudeen:
For India: On November 8 2016, the government of India announced the demonetization of Rupee 500 and 1000 banknotes aimed to address and clean out corruption and the circulation of black market money in the country’s economy. All 500 and 1,000 rupee notes were instantaneously voided, and a 50 day period ensued where the population could (ideally) redeem their canceled cash for newly designed 500 and 2,000 rupee notes or deposit them into bank accounts. This exercise led to a cash crunch. The effect of the demonetization of the Indian rupee on palm oil imports saw a 20% decrease in imports for palm oil products. The Solvent Extractors’ Association of India in its report on the 13th of January 2017 indicated that the overall import of vegetable oils during first two months of current oil year 2016-17, Nov. & Dec.2016 at 2,385,149 tons compared to 2,758,337 tons i.e. down by 14%. During Nov.-Dec 2016, Import of refined oil (RBD Palmolein) has marginally increased to 486,502 tons from 463,482 tons in the same period of last year, while Import of crude oil decreased to 1,843,657 tons from 2,278,889 tons during the same period of last year. The demonetization of the rupee resulted in a cash crunch and the downstream players and smaller buyers who pay in cash cancelling their orders. This had a knock-on or trickling effect on the refineries and on the supply chain distribution of palm oil as imports and production of edible oil in India was reduced. However, this is expected not to linger too long as experts anticipates that the cirstances is a short-term problem and the situation should return back to normal within 3 to 4 months after the implementation period. Imports of vegetable oils is expected to ease in the coming months due to good kharif oilseeds crop and better domestic availability of edible oils. However the spread between palm oil and soft oil will continue to be a factor in the India decision making process for palm oil. If the spread widen then there is a high probability that India will purchase for palm oil and discourage the imports of other soft oils.
6 years ago

Faudzy Asrafudeen:
For China: Yes, the release of state reserve rapeseed oil has been on track according to the plan as per released last year's Oct whereby the government will put up around 100,000 MT of rapeseed oil for auction every week until the reserve being lowered to a strategic level. Hence, the government has so far auctioned 690,000 MT up to 22 Feb (auction takes place every Wednesday) this year. In another word, the estimated reserve left is around 1.58 million MT. As there is no official announcement by Chinese government on the strategic level of reserve it will keep, but industry generally predicted that it will be around 500,000 MT; there will be another 1.00 million MT rapeseed oil to be released by the government.
6 years ago

Muhamad Hafiz Abd Aziz

6 years ago

Do you think any policy or policies by President Trump against China that will trigger new demand for palm oil from China?

Faudzy Asrafudeen:
China being a super power by itself will not be easily swayed by the policies adopted by the United States against it. I would presumed the United States would tread carefully in its economic policy with China, being the most populous country in the world and having a stronger and steadier GDP growth. In fact they may not want to jeopardize their dependence on China as their main export market destination for their soybean production. The decline in inbound shipments last year, coupled with low inventories, could see China’s imports recover sooner. China, like India, is a price-sensitive market and with production set to recover in the two biggest palm oil producing countries, prices should fall to levels that will attract Chinese buying. Palm oil’s inexpensive price, relative to soybean and rapeseed oil, is a major factor affecting its demand in China. Blending palm oil with other vegetable oils for cooking is a popular practice which will likely increase given the current competitiveness of the palm oil price The factor that consumers in China take into consideration is the price differential between crude palm oil and soybean oil, they demand will shift for more of their consumption to palm oil if the discount widen.
6 years ago