May 24, 2017 / 4:51 AM / 3 months ago

Chinese demand for palm oil set to drop as buyers snap up alternative cargoes

* Rapeseed oil, soyoil pouring into China markets

* That is stifling appetite for palm oil imports

* Low palm demand seen continuing until Mid-Autumn festival in Oct

By Emily Chow

KUALA LUMPUR, May 24 (Reuters) - Palm oil demand from China, the world's No.2 importer of the commodity, is set to drop in coming months as supplies of alternative edible oils flood local markets, industry sources said.

Sluggish Chinese appetite for palm oil, used in everything from preparing food to churning out biofuel, could pile further pressure on benchmark prices that have shed 15 percent since the start of the year due to expectations for rising output.

"The number of cargoes to China for June to August is very low ... badly below normal, maybe less than 100,000 tonnes a month," said a Shanghai-based analyst at an asset management firm, declining to be identified as he was not authorised to speak with media.

The country imported over 200,000 tonnes of palm last June, with shipments typically sent from top producers Indonesia and Malaysia.

The drop comes as alternative edible oils pour into Chinese markets, with the country selling rapeseed oil from national stockpiles and soybean crushing volumes shooting up. Low domestic edible oil prices are expected to cap palm oil demand until the Mid-Autumn festival in October, when appetite typically spikes, analysts said.

Those weak domestic edible oil prices pushed the spread between Dalian soybean oil and palm oil to its narrowest in nearly a decade in April.

That prompted Chinese buyers in early May to cancel three palm oil cargoes for July and August, according to a report by China's National Grain and Oils Information Centre.

"In the short term, we may see China pick up more soybeans versus crude palm oil given the soy meal affordability," said William Simadiputra, plantations equity research analyst at DBS Bank.

Monthly soybean imports to China rose to 8.02 million tonnes in April, a record for the month, supported by strong demand for soymeal. Imports are expected to rise further, as China typically buys large volumes of soybeans from May to August.

Meanwhile, palm oil prices are expected to fall towards year-end as output recovers in the wake of an El Nino weather pattern in 2015-16 and in line with seasonal trends.

However, declines could be curbed as Malaysian output in March and April – typically when production starts to pick up – saw its lowest monthly growth in three years.

($1 = 4.2940 ringgit)

Reporting by Emily Chow; Editing by Gavin Maguire and Joseph Radford

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