Upward price trend continues under the lead of palm and lauric oils

Upward price trend continues under the lead of palm and lauric oils

Your Bi-weekly update on edible oils & fats by Aveno
November 20th, 2019

In the U.S. soy markets were pressured somewhat, along with Wall Street equity markets, after reports that the Chinese mood about a trade deal was pessimistic due to Trump's reluctance to etc. etc... But were supported by the delay in harvesting and China opening up for U.S. poultry meat (soybean meal consumption). Brazil is pushing its biodiesel blending to 12% in March, from 11% implemented in September. Brazil targets 15% or higher by 2023 and testing is underway for 20% and 30% biodiesel, like Asian countries are already implementing. 

Price for rape oil is still firm but stable. However, fears for a tight rapeseed supply in 2020 have not vanished, while exports from Ukraine are drying up. Analysts calculated that still 3.91 million mt need to be imported before June 2020 to meet forecasted European demand. Ukraine is fully sold out on old crop seeds and discussions now focus on the new crop, which will be harvested next June. Remains to be see if Canada and Australia (drought/fires) can bring any relief. Fasten your seatbelts!

Coconut oil gained about €50 to 70/mt and palm kernel oil even gained €100/mt in two weeks’ time following the raise in palm oil and concerns of low stocks of palm kernel oil. 

Since October palm oil prices experienced a strong rising momentum when sentiments of lower production and stronger exports kicked in. A catalyst for the price rally was the blending quota increase for biodiesel to 30 % in Indonesia in January. At the same time, production is declining and supply growth is expected to be limited due to dryness in 2019 and less fertilizer applied in the plantations due to low oil prices. With what they know today analysts expect the upward price trend to continue the next six months.

Crude palm oil price evolution cif Rotterdam
Source: Indonesian Palm Oil Association

Edible oils are a commodity subject to the laws of supply and demand and market volatility. Predicting where the market is going and when to buy or not, is an impossible task, like fortune telling, not in the least because of the many (unforeseen) variables. But analyzing the underlying trends is a start to understanding how to manage price risk. 

The growing trend of biodiesel, influencing our markets (locally or globally), has been with us since long, but only in the last years has it become so dominant. Since the 1990s, global biodiesel production increased dramatically for diverse reasons which evolved differently in different countries. The growth of soybean production has been driven by the demand for soybean meal for animal feed, resulting in excess soybean oil which had to find a market. The productivity growth in palm oil production also led to more oil supply than the (present) food demand, which has to be disposed of in others markets. Biofuels also play a role in tackling the growing challenge of climate change. Today’s global biodiesel production is bigger than Indonesia’s total palm oil output in 2018 (41 M mt)! Further down the road we may question the future of the combustion engine worldwide… but that is too far way. 

More closely are next year’s weather concerns as scientists forecast an 80% chance of an El Nino event (sea-surface temperatures rising above normal levels in the Pacific causing a shift in weather patterns which can bring heavy rainfall and/or long drought periods to countries around the Pacific — from South-America to Indonesia and Australia. This is a normal, well known, reoccurring weather event, but of unpredictable intensity and something to watch.

World production of biodiesel in million metric tons (Oil World):

Source: Bockey D. 2019. The significance and perspective of biodiesel production–A European and global view.OCL26: 40

Brent Crude on 19 November: $60.91

Petroleum prices retreated on fears of oversupply and a pessimistic sentiment on the trade war. The trade negotiations continue to drive market sentiment (it can freeze or it can thaw). 

US dollar on 19 November: EUR 1 = USD 1.1077

The trade negotiations continue to drive market sentiment (it can freeze or it can thaw).

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Unless otherwise mentioned the crude oil values quoted in these documents are prices landed in EU without import duties, handling, storage, financing, refining, packing, transport or any other cost related to bring the product to market. They are used as market trend illustration. Substitution of oils is possible but different oils have different fatty acid profiles and are not all interchangeable for all applications. One can make biodiesel from all oils and fats but one cannot make mayonnaise from coconut oil. This document is exclusively for you and does not carry any right of publication or disclosure. This document or any of its contents may not be distributed, reproduced, or used for any other purpose without the prior written consent of AVENO. The information reflects prevailing market conditions and our present judgement, which may be subject to change. It is based on public information and opinions which come from sources believed to be reliable; however, AVENO doesn’t guarantee the correctness or completeness. This document does not constitute an offer, invitation, or recommendation and may not be understood, as an advice. This document is one of a series of publications undertaken by AVENO and aims at informing broadly a targeted audience about the edible oils & fats market. AVENO’s goal is to keep this information timely and accurate however AVENO accepts no responsibility or liability whatsoever with regard to the given information.

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