May 4, 2004



China Shifts Consumption From Soy To Palm Oil As Summer Approaches


China, set to overtake India as the world's top edible oils importer this year, is expected to seek cheaper palm oil from Malaysia and Indonesia as summer approaches, instead of soy oil from South America, traders said this week.


China's appetite for Brazilian and Argentina soy oil, which has boosted world prices to 15 1/2-year highs this year, is expected to fade as the country has already covered 70% of its needs for 2004 after booking close to 2 million tons, they said.


"We're going into the palm oil season. It's getting warmer and that's apt for palm oil consumption," said a trader with a global trading firm in Singapore.


In the summer, China usually prefers to consume palm oil and switches to soy oil during cooler months because cheaper palm oil solidifies easily at low temperatures.


South American soy oil was quoted at around US$650 per ton C&F China for shipment in the next few months, around US$80-90 more expensive than palm oil.


"They'll continue to buy palm oil substantially in the summer because they haven't bought anything beyond June," the trader said. "They're snapping up palm oil ... on the spot market, meaning they'll be covering late April or early May positions."


China has been active in the palm oil market and is gradually retreating from soy oil purchases. It was the largest buyer of Malay palm oil from April 1-10, taking 119 622t out of a total of 347 908t, according to cargo surveyor Societe Generale de Surveillance.


In addition, during the past couple of weeks the country had booked up to 80 000t of soya oil for shipment from May through October, at around US$650/t C&F China, traders said.


"China has been buying, but the amounts have been small. They won't be buying a lot in the short term," said a trader in Beijing.


China is expected to use almost all of its low-duty import quotas for edible oils this year, including 3.1 million tons of soy oil and 2.7mt of palm oil.


Its pace of buying has been brisk due to slow crushing. With soybean prices at multi-year highs, crushers have been making losses over the past few months, traders said.


"Crushers are still making losses buying soybeans at today's prices. Soymeal prices haven't recovered enough," said a trader in Shanghai.

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