Palm Oil Internet Seminar

Section 1: Price Direction:
Outlook of China Soybean Demand - A Critical Factor Influencing Palm Oil Demand and Supply in 2021
By: Mr. Cai Neng Bin

He is the General Manager of Shanghai Pansun Company. His roles and responsibilities in the company are analyzing oilseeds and oils and fats market information, with main emphasis given on systematic data analysis and make judgement on market trading pattern. He is also able to gauge the change of medium to long market trends of agricultural products, and provides trading and hedging strategies through capturing price differences arises from logical error within markets, and between different products and months.
Current Developments
A) Trade relations between China and USA eased and China’s soybean imports increases.
a. Recovery in swine production increases the demand for soybeans in China.
b. China will fulfill its trade agreements with USA to enhance US soybean imports substantially.
c. China’s purchasing pace affects the supply and demand of soybean in North and South America when season changes.
d. Brazil’s soybean harvest and logistics delays have postponed supply pressure, tightening the supply of US soybeans in short-term.

B) Prevention and control on African Swine Fever (ASF) still affect China’s soybean crushing volume.
a. Swine breeding industry has improved with policy support.
b. Changes in the new situation of African Swine Fever (The prevention and treatment of ASF is a tremendous task in a long run, including scientific R&D and application of vaccines. Virus mutations as well as rebound of the pandemic slows down the pace of recovery of swine breeding.)

C) Supply-side reduction intensifies the tension between China’s oils & fats supply and demand.
a. Multiple factors lead to a structural change in China’s oils & fats supply and demand.
b. With the impact of COVID-19 and trade tension between foreign countries, China has enhances its attention to the safety of agricultural products supplies.
c. Increase in demand and decrease in supply lead to a low level of inventory which will take longer to rebuild.

D) Tight supply pushes up prices.
a. Tight supply in global oils & fats is spreading to other commodities.
b. Tight oils & fats supply is reflected in high basis and monthly difference
c. Tight supply in China’s oils & fats market as a result of the national reserve of soybean oil, import restrictions on rapeseed and reduction in sunflower oil production.
d. The price difference reflects the difference of supply shortage among oil varieties in the short term.

E) China’s palm oil imports and consumption still have potential for growth.
a. Palm oil import situation and influencing factors.
b. The balance between expectations on palm oil inventory change and the price.
c. Evaluation on palm oil consumption and widening discount promote palm oil consumption.

• Economic recovery under the control of the pandemic across the world, and expectation on demand for oils & fats is increasing.
• Reduction in the production of many types of oils & fats has caused supply shortage of global oils & fats. It is expected to take more time to rebuild the inventory level.
• The core of the trade is driven by inventory level and expectations on recovery. The imbalance between supply and demand is strongly repaired through the price spread structure.
• Increased palm oil production eases the supply shortage, and pressure on short-term inventory rebuilding is not heavy.

Conclusion - The tight supply is difficult to ease during this year and the fluctuation of oils & fats is strong, which drives the price of the next month to rebound and upwards.

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Questions & Answers (7) :
Laura Tyring
3 years ago
Dear Mr Cai, we wanted to review your presentation slides again, but unfortunately, they are blank when we select the "view presentation slides" red button. Can you please assist? Thanks!
Jacquelyn Yow
3 years ago
Dear Mr Cai, Understand that most of the Brazil soybean production had been sold forward to China, how much of the total Brazil soybean production had been sold forward? and how much had been delivered to China as of Mar 21?
Cai Neng Bin:
According to the data tracked, China's current order of soybean shipments from Brazil in 2021 is about 61 million MT, 3.98 and 11.1 million MT shipped in February and March respectively.
3 years ago
Azwan Fitri Bin Zainal Abidin
3 years ago
Mr. Speaker, We are supplying palm oil material to China for infant formula production. However, we notice the demand is coming down lately. May I know what is the outlook of the demand of infant formula in China? What would be the potential infant formula demand quantity for 2021-2022?
Cai Neng Bin:
My apology for the late reply but unfortunately that I'm unable to reply your question as I'm not familiar with the infant formula industry.
3 years ago
3 years ago
Trade war is getting serious. Unprecedented situation requires unprecedented measures. What happen if USA ban shipment of soybean to China?
Cai Neng Bin:
At present, China and the United States trade relationship is in good order and trade war will not reach very serious level. The sales of American soybeans to China are coming to an end, and this will lead to declining sales in near term. Buyers are focusing more on new season planting.
3 years ago
Anthony Yap
3 years ago
a) The implementation of Regional Comprehensive Economic Partnership (RCEP) will it lower the import duty and tariff of Palm Oils products into China? 当执行区域全面经济伙伴关系协定(RCEP)时,中国是否会降低棕榈油入口关税 ? b) What are the current import duty & VAT for RBD Palm Olein, RBD Palm Stearin; Crude Palm Oil and Crude Palm Kernel Oils? 目前国内的增值税和入口关税给毛棕,硬脂,毛棕榈仁油,和二十四度棕榈油是多少? c) Will implementation of Regional Comprehensive Economic Partnership (RCEP) will it help to increase the demand of palm oil for China? 当区域全面经济伙伴关系协定(RCEP) 执行时,棕榈油需求是否会增加? d) China's 14th Five-Year Plan (2021-2025) will it bring any good news for Palm Oil Industry as a whole? 关于制定国民经济和社会发展第十四个五年规划,是否会为棕油业带来好消息?
Cai Neng Bin:
a) China's palm oil import is completely market-oriented, and the oil & fat import tariff and value-added tax are planned by the central government, where the system is very mature, and will not have significant different treatment among major oils & fats in term of tax. So, not aware that China is planning to lower import duty of palm oil under RCEP. b) At present, import tariff of CPO and RBD Palm Olein are at 9% and VAT at 9%. Import duty of RBD Palm Stearin at 2% for SMP 50-56 degree celcius and 8% for SMP 44-49 degree celcius, VAT for these 2 types of RBD Palm Stearin are at 9%. For Crude Palm kernel oil, both import duty and VAT are at 9% respectively but ASEAN countries enjoy 0% import duty under the ASEAN-China FTA framework. c) It is always possible to increase the intention of purchase under any regional cooperative framework. d) One of the utmost objectives for China in any economy development plan is assuring food security. As oils & fats market in China is already highly globalized and market oriented, demand for palm oil will depend more on market forces.
3 years ago
3 years ago
1)The tight supply of all oils and fats is not so much due to not enough stock but rather logistics jam up to move the goods? Correct? 2)You mentioned that tight supply is difficult to ease this year. I agree. How long more do you think (guess) business will run as normal if free movement is possible end of this year?
Cai Neng Bin:
1) The logistic issue only hindered the clearance of cargoes at early stage of covid-19 outbreak i.e. Q1 and Q2 2020, where subsequently not aware that the importation is impacted by logistics issue. 2) Movement of business personnel has never been a factor affecting the tight supplies of oils & fats in China.
3 years ago
3 years ago
Dear Mr. Cai, Do you think the current ASF cases will reduce the demand of soymeal in China? Have you factor this into your forecast? What is the scale of current ASF outbreak compare to 2018/19? With the recent record high discount between olein and soybean oil price, any estimation what would be the additional volume that olein can capture in China? In your view, will China government will continue to build up the oilseeds and vegoil reserves? Any idea is the current reserves level at record high? if no how far is current level vs the previous high? Thank you.
Cai Neng Bin:
The recent African swine fever mutated virus has low mortality but strong infectivity, which is mainly related to non-genuine vaccines. The impact of individual farms is similar to that of 2018 / 19, but the scope of area is much smaller. Under the influence of mutated ASF virus, the loss of breeding sows slowed down and the pace of live pig breeding is recovering, but as there is concentrated slaughtering of medium and under-weight pigs led to the decline of short-term soybean meal consumption demand. By the end of February, the number of breeding sows in China was 95.0% of that at the end of 2017, and the number of live pigs in China remain above 400 million heads. With the rapid response of the national epidemic prevention and control in March, the recent ASF has been effectively controlled. In the second half of the year, the number of breeding sows in the country will continue to grow, the production capacity continued to recover, and the number of live pigs in the market increased significantly. Actually at present, another factor affecting the demand for soybean meal is the price of wheat as compare to corn. Due to the higher protein content in wheat vis-à-vis corn, the substitution of wheat for corn also replaces the some demand for soybean meal. According to the current price difference and China's oil supply and demand situation, China's RBD Palm Olein consumption potential in 20 / 21 (October September) can reach 5 million MT, and total consumption of PO will be close to 7 million MT if include Palm Stearin. The improvement of consumption is related to whether China can import the required amount, and the import profit affects the enthusiasm of shipments booking. In 2021, the No.1 Notification of Central government of China clearly proposed that the CPC party and the government should take the same responsibility for food security in terms of improving the supply guarantee capacity of food and vital agricultural products. Considering the security of supply, the Chinese government has increased oilseeds and vegetable oil reserves, and governments at all levels are also increasing local reserves to ensure supply. The process and range of purchase and storage should take into account the global supply and demand tension, domestic inventory level, cost, storage resources and other factors. The data of national reserves belong to the category of confidentiality. In the medium and long term, there is still room for improvement in the level of collection and storage and later rotation.
3 years ago
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