Concerns over the fallout of COVID-19 continue to weigh on markets

Concerns over the fallout of COVID-19 continue to weigh on markets

Your Bi-weekly update on edible oils & fats by Aveno
February 21th, 2020

Market ignores constructive fundamentals

Overall markets remain pressured on the fear of what effect the coronavirus has on demand of commodities on the short and long term, and on the global economy in general. It became clear that the integrated global economy is more vulnerable for the domino effect than previously thought. Especially production companies, which have “single sourced” components in China, are starting to worry. Many Chinese companies didn’t start up after their New Year’s holidays, resulting in a 6 weeks downtime or about a 10% of yearly production loss.

There are over 75,000 infections of which about 74,000 in China, but reports now suggest the number of new cases is decreasing. And China’s Central Bank has cut interest rates on loans, in order to support the demand side of its economy. 

Analysts still expect firmer vegetable oil prices in coming months due to constructive fundamentals which the market now ignores: like the decreasing palm oil production and a worldwide consumption increase. Oils and fats stocks in China and India are very low and sooner or later that demand will hit the market. Also, palm oil shipments to EU are becoming ‘technical’…

Source: European Commission / IGC, Monthly average close Feb. 20th 

Global supplies of animal fats are to remain tight in 2020 due to increasing demand for biodiesel production in Europe, Singapore and the U.S... The Australian cattle herd is reduced for different reasons and less tallow will be available. Due to African Swine Fever mainly in Asia, but also in eastern Europe, the production of lard is considerably down and has to be replaced by other fats.

The palm oil price recovery came to a sudden halt as did some parts of the economy, following the outbreak of the corona virus in China. Since mid-January the price in origins dropped 15%, but this is expected to be temporary. 

The worldwide production of rapeseed is still seen decreasing. Relief will have to come from the next crop and meanwhile European rapeseed prices have recovered from recent lows. COCERAL, the European Trade Association for grains and oilseeds, feedstuffs, rice, olive oil, oils and fats and agro-supply, forecasts the 2020 rapeseed crop in EU 27 + UK at 17.1 million MT which is only marginally higher than last year’s disappointing crop of 16.7 m MT (2018: 19429 and 2017: 21895 m MT). China also bought a cargo of rapeseed oil in Europe which suggests that rape is also tight in China. 

Source: Thomson Reuters

The soybean oil production is expected to increase slightly compared to the previous year but so will demand, especially from biodiesel producers. South American weather still looks favorable and Argentinian soybean crop conditions are seen as “exceptional” while the harvest in Brazil is starting to gather momentum. Analysts raised the Brazilian crop expectations, from 123 previously, to 125.6 million MT.

Sunflower oil became an attractive alternative for soybean oil in terms of price and also biodiesel producers contracted sun oil to replace expensive rapeseed oil. As a result, the refining capacities for sun oil are almost completely sold for the coming months. 

The current Spanish olive oil harvest looks much smaller than previous season. However, there are still huge stocks from last season. Overall, the “extra vierge quality” is rather poor this season, which is due to the heavy rainfall end of 2019. This is reflected in a price increase for the best qualities. But the price level remains attractive, since the crops in Italy, Greece, Tunisia and Turkey are very good and Italy will need less Spanish oil.

The “Olive Oil Times” recently reported that Spanish farmers’ unions are looking at using 600,000 metric tons of low quality “lampante” olive oil as feedstock for biodiesel. So far nothing materialized and it competes with cheaper feedstocks, but it shows how desperate they are to clean up the market. The unions say that paying for storage is just prolonging the oversupply rather than solving the problem. The European carry-out at the end of this season is seen at the same high level as with previous crop.

Source: European Commission 

Average EU-27 butter prices: 360 €/100 kg continue to move sideways (Dutch butter price on Feb 20th: 352€).

Source: Nieuwe Oogst

Brent crude petroleum price (February 20th): $ 58.82/barrel

1 EURO (February 20th) = USD 1.0790

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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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