Mixed views on market direction

Mixed views on market direction

Your Bi-weekly update on edible oils & fats by Aveno
July 10th, 2020

The easing of restrictions around the world boosted demand for edible oils and fats from the hotel, restaurant and catering sector. More driving to and from work, to shops and leisure increases demand for fuel and consequently biodiesel. 

In addition to the usual demand, supply and weather forecasts, covid-19 continues to create worldwide uncertainty, especially in the U.S. and Brazil. Petroleum prices softened on concerns that the surge in covid-19 cases in the U.S., the world's biggest petroleum user, would limit the recovery of fuel demand… But also, in other parts of the world there are fears for a ‘Lockdown 2’ scenario. 

Source: European Commission / IGC, Monthly average close July 8th

In July/august weather events will dominate markets: in EU, the U.S. but also in Canada, Australia, India, Russia, Black Sea area… in short in all growing regions. It can be too dry, too hot, too wet. Weather markets can be very nervous with sharp price movements. Today generally speaking growing conditions look OK in most places. Overall, diesel + biodiesel demand will be the key swing factor as we move along.

The outlook for the new EU rapeseed crop was already pessimistic, and the wet weather is likely to further pressure yields. Import of rapeseed from Ukraine, Canada and Australia will be needed.

Beginning this week, soy prices in Chicago reached their highest level in more than 4 months due to a disappointing area forecast for soybeans and a weather forecast… Chinese import demand also remains important: how much will they import? And from whom? China can temporarily reduce its import by using their accumulated stocks. Brazil is sold out for the current season, while Argentina still has large stocks that farmers don’t (yet) want to sell. In EU most refined soybean oil capacity is sold out till next season.

Sunflower seed prices remained stable and the market is awaiting the new harvest. New crop seeds in Romania were offered at a $75 discount vs old crop. China and India have been buying sunflower oil and meal from Ukraine.

For palm oil the market is monitoring the inventory evolution in producing countries Indonesia and Malaysia. Price direction will depend on production evolution, export demand and stock buildup. The threat of a second covid-19 wave could keep prices under pressure.

Copper prices back to price level from the beginning of the year

Demand recovery and concerns about a drop in supply pushed copper prices up to $6,175/t, completely reversing the price drop due to the pandemic. Chili produces 25% of the world's production and thousands of Chilean copper miners are infected with covid-19. At the same time, demand for copper rose in China which is largest user of the base metal.

This example is noteworthy as the price increase is also supply driven. There is demand recovery from China but no one can ascertain that worldwide demand is back to pre-corona levels and that after stocks have been replenished, demand will continue to grow or stabilize at a lower level than before. This is the kind of situation we are in today with edible oils and fats: no one can be certain of coming demand evolution. And although prices have the potential to explode if covid-19 disappears and global consumption outpaces production, uncertainty continues to weigh heavily on prices.

Brent crude petroleum price on July 9th: $ 42.30/barrel

Intercontinental Exchange (ICE) Gas Oil price on July 9th: $363.00/metric ton

We are still far below pre-pandemic consumption and price levels. Fears for a second wave of covid-19 infections that could hamper the global economic recovery and concerns over an oversupply of petroleum kept the market under pressure.

The American Petroleum Institute and the Energy Information Administration reported unexpected increases in U.S. crude inventories: demand from the largest petroleum user in the world dropped below the supply which makes one wonder if the recovery of petroleum prices is sustainable and whether it has further to go.

Low gasoil prices make crude palm oil of $612 and crude rapeseed oil of $868/MT not at all attractive as biodiesel feedstock. But in some countries, there is, beside mandatory blending, a mandatory GHG (greenhouse gas = CO2) reduction program which causes higher biodiesel admixture in order to attain the mandatory CO2 reduction goal (regardless of the price…).

1 EURO (July 9th) = USD 1.1342

Euro evolution from January 4th 1999 to July 10th 2020

Source: ECB

It is AVENO’s privilege to serve you, please know we are always here to help.
Enjoy the holiday season!

Don't forget to check out our other bi-weekly updates!

There is some complexity to the business we daily operate in. To help understand the business of being an edible oil and fat producer we've launched this bi-weekly newsletter.

Every two weeks we will share an update about edible oils and fats. You can find all previous updates on: https://www.aveno.be/search/label/newsletter

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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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Aveno NV - The one stop shop for all your Oils and Fats: Mixed views on market direction
Mixed views on market direction
There is some complexity to the business we daily operate in. To help understand the business of being an edible oil and fat producer we've launched a primary newsletter. Every two weeks we will share a market-update about edible oils and fats and every month we will share a bulletin.
Aveno NV - The one stop shop for all your Oils and Fats
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