China S Pigs Pose Unexpected Threat To Palm Oil Rally

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The palm oil industries recent rally faces a new threat – the hog industry of China.BEIJING: Palm oil’s bull run will face more headwinds in the coming year as leading importer China buys increasing amounts of soybeans to power an aggressive expansion of the country’s hog industry.
The world’s biggest pork producer and consumer is scooping up unprecedented quantities of soybeans and corn on world markets to feed domestic hog herds that are rebounding after being devastated by African swine fever.
The crushing of beans produces not only meal, a component of livestock feed, but also oil, palm’s top rival in the food and biofuel industry. Those increased supplies now threaten China’s purchases of palm oil just two years after they surged to a record when a US-China trade war curbed imports of beans.
“The extra soy oil supplies will replace imports of palm oil and other edible oils,” said Shi Lihong, an analyst with China Futures Co.
The recovery in hog numbers will boost soymeal demand by 8% to 10%, and drive bean imports to a fresh record, she said, adding that overseas purchases of palm oil by China, the second-biggest importer, will likely drop to a three-year low in 2020 to 2021.
Palm oil has also been very expensive compared with soybean oil in global markets, trading around parity for a while in the final quarter of last year versus the usual discount, and discouraging purchases by global buyers.
Benchmark palm oil futures doubled from their low in May to reach a 10-year high this month on the back of shrinking supplies in Malaysia, the second-largest producer. Soybean oil trailed, increasing just 70% over the same period.
The rally has squeezed margins for buyers, and may cut Chinese imports to 400,000 to 500,000 tonnes a month in the first quarter from 650,000 to 750,000 tonnes in October to December, according to the China National Grain and Oils Information Centre. Purchases may drop 8.8% to 6.2 million tonnes in 2020 to 2021, it said.
On top of the high prices and export taxes that may deter aggressive buying, China has completed restocking for the Lunar New Year, said Ivy Ng, head of research at CGS-CIMB in Kuala Lumpur. The festival, in mid-February, typically drives up consumption of palm oil to fry dumplings and spring rolls.
“Judging by the palm oil volumes bought at the end of last year, they could have enough to take them through Chinese New Year, so they wouldn’t be buying now,” she said.
“Buyers may do some restocking in March or April, but that’ll depend on the take-up during the festive season and by how much they’ll need to replenish reserves.” - FMT

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