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China and energy dominate uncertain market direction.

China and energy dominate uncertain market direction.

Your Bi-weekly update on edible oils & fats by Aveno
August 14th, 2020

World edible oil prices rose on bullish palm oil fundamentals and funds adding to their long soybean oil positions. The determining factor for the market direction is likely China. Chinese buying fueled the recent rally, and if edible oil prices in China drop or if China vanishes from the market… this would be like pulling the plug from the bath tub.

Noteworthy for the outlook for edible oils are the recent announcements by petroleum majors about entering the renewable fuel production business. Even if short term this does not impact the demand for edible oil, it may well generate speculation and that may trigger some buying. 


Source: MPOB

Market evolution in the past 2 weeks

OCT position, refined, in euro: 

Sunflower seed oil inscreases about € 5/t. Palm kernel oil increases about € 15/t. Coconut oil increases about € 40/t. Soybean oil not available. Palm oil increases about € 15/t. Rapeseed oil increases about € 20/t. EU average butter price is moving sideways at € 333/100 kg. Groundnut oil not offered.

Market situation 


Soybeans 


In the U.S. crop conditions improved to one of the best in years. August is "make or break" for the soybean crop which is now rated 75% good to excellent; ‘the best crop ratings since 1994!’ With extra rains a record high yield is certainly possible. Weather will be watched closely. A storm over the Midwest this week caused damage to crops and property leaving many towns without electricity. 

Soybean oil prices found support from firmer palm oil prices, continuing large purchases by China and demand from the biodiesel industry in the U.S. and in Brazil where the mandate for 12% biodiesel incorporation was implemented last march. On top of that Brazil is running out of beans due to earlier exports to China and will have to rely on imports of beans/oil from the U.S. and Argentina.

In Europe, more beans were crushed in the past months and less rapeseed, but soybean oil remains sold out until the end of the year, mostly due to biodiesel demand (and soybeans yield only 18% oil compared to 40% for rapeseed). 

Rapeseed

EU harvest is nearing completion. The smaller rapeseed harvest in Ukraine is supporting rapeseed oil prices. In Canada weather remains good and crop estimates remain unchanged at 20 million MT. Australian weather is also favorable for the crop. Europe will have to rely on imports of seed to satisfy demand but also China is interested in buying rapeseed and rape oil. The recent floods in China may also have damaged their already harvested rapeseed inventories. 

Norway has been importing rape oil to replace fish oil in fish feed but also because they have a growing demand for biodiesel in “marine diesel”. More stories pop up of container vessels running on cleaner fuel to reduce GHG (green house gasses). Downward potential is limited. 

Linseed oil

Linseed oil prices remain high as hot and dry weather in Kazakhstan is causing crop expectations to decline. At the same time, demand from China for linseeds and linseed oil (mainly from the producing area’s Russia/Kazakhstan where production is up) has grown big time and is expected to continue to grow. European linseed users may have to redirect part or all of their sourcing of seeds to Canada. Also, Norway is increasing its imports of linseed oil for their aquaculture industry as a source of omega-3 for the fish and to replace more scarce and expensive fish oil. Due to good demand there is a limited downward potential. 


Groundnut oil


As China has been buying large volumes of groundnuts to eat, less was left to crush and less oil was produced. So far prices remain supported and availability is still a problem but for the season 20/21 India might bring some relief as their plantings have increased by 50%! It was also reported that China had larger plantings and Argentina just brought in a good crop. To be seen how much groundnuts will be used for oil production instead of as roasted and salted peanuts or peanut butter. 



Sunflower seed oil

Sun oil prices firmed due to hot dry weather in the Black Sea region which could have a negative impact on the coming sunflower harvest. Till the new crop, supply of seeds will remain scarce and expensive. Nevertheless, overall analysts expect a good sunflower harvest, so that prices may ease. 



In EU the planted area expanded 2 % and yields are estimated 6 % higher than last year, which may result in a bumper crop of 10.8 million tons, up 8 per cent vs previous crop. In some member-states, sunflower production also benefited from favorable growing conditions at the time of sowing. 


Palm oil

There have been reports of, covid and weather related, smaller productions in both Malaysia and Indonesia. We also saw good exports to China and India who wanted to restock. But lastly palm had some difficulty to retain the bullish momentum. 

  • Will the buying interest fade once the oils have been restocked? 
  • Because of mandates the market needs biofuels. But with higher oil prices the gap with petroleum widened and makes oil less competitive. What is the impact on demand? 
  • Around the world food and fuel use still suffer from the pandemic; how long will it last? 
  • Will production and stocks recover in the coming weeks/months?

Laurics

Production of coconut in the Philippines may drop by about 10% this year. This is something to watch as coconut oil can move quickly up when supply dries up. Palm kernel oil saw good demand from the recovering oleochemical industry and if palm oil production drops, there are also less palm kernels!



Source: Trading Economics


After hitting a two-year high of $1.192 last week, the European currency lost some ground but the USD remains under pressure. 

The International Energy Agency decreased its petroleum demand forecast due to reduced air travel caused by the pandemic and OPEC's monthly report indicated that global petroleum demands this year will likely fall deeper than initially expected. On the other hand, oversupply concerns eased after three consecutive weeks of falling crude and distillate inventories in the U.S.





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





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

Sign-up for Aveno's newsletters!



Disclaimer

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: China and energy dominate uncertain market direction.
China and energy dominate uncertain market direction.
Aveno BiWeekly on Edible oils and fats. China and energy dominate uncertain market direction. August 14th, 2020.
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