In 2016, the market price of palm oil keeps climbing up for 5 consecutive
months in China. According to CCM's price monitoring, the average market price
of palm oil (24°) is USD881.68/t (RMB5,692.56/t) in May 2016, a MoM rise of
1.11% and a YoY rise of 8.87%.
Market price of palm oil (24°) in China, Jan.-May 2016
Source: CCM
As the domestic supply and demand remains stable recently, the rising market
price of palm oil is mainly affected by the following external factors:
- The yield reduction in producing area of palm oil
The first quarter of a year is the traditional slack season for palm oil
production. Coupled with the influence of the El Nino phenomenon, the dry
weather affected the yield in producing area. "The El Nino phenomenon
reduces the global output of palm oil by over 2 million tonnes in 2016,"
said James Fry, president of LMC International at the Palm Oil Industry
Conference held in Kuala Lumpur in Feb. 2016. Therefore, the sliding yield
stimulates the domestic market price to go up.
- The mounting price of competing product – soybean oil
According to CCM's price monitoring, the market price of soybean oil also
continues rising for 5 consecutive months in China in 2016. In April, the
average price of soybean oil (first grade) at port was USD992/t (RMB6,407/t),
up by 5.99% MoM.
China's palm oil relies on import. The import volume of palm oil is also
increasing in 2016. China's imported palm oil mainly includes palm stearin (HS
code: 15119020) and palm olein (customs code: 5119010). In Q1 2016, the import
volume of palm oil was about 1.15 million tonnes, up by 20.60% YoY.
Notably, China mainly imports palm oil from Malaysia and Indonesia. In 2015,
57% and 43% of palm oil was mainly imported from Indonesia and Malaysia
respectively (total import volume: 5.89 million tonnes). The import price was
USD538.94/t in Q1 2015, a MoM rise of 2.8%.
Due to the rising palm oil price, the price gap between palm oil and corn oil
is narrowing. China's palm oil is widely applied in the food industry, which is
a direct competing product for corn oil. When the market price of palm oil
keeps rising, that of corn oil continues falling.
In May 2016, the average
market price of corn oil (first grade) is USD1,308.35/t (RMB8,447.61/t), down
by 2.5% MoM and 1.86% YoY. The price gap between palm oil (24°) and corn
oil (first grade) narrows to USD426.67/t vs. USD784.93/t in Dec. 2015. Thanks
to this, corn oil enjoys increasing price advantage and it will grab some
market shares of palm oil.
Market price of corn oil (first grade) in China, Jan. 2014-May 2016
Source: CCM
Price gap between palm oil (24°) and corn oil (first grade) in China, Jan.
2015-May 2016
Source: CCM
The effect of the El Nino phenomenon on palm oil production often lags. After
calculation based on the experience of previous years, the effect of the El
Nino phenomenon will hit a peak in Aug. 2016. Since the third quarter of a year
is the busy season for palm oil production, the yield is predicted to be
greatly impacted by the El Nino phenomenon this year.
In addition, it is very
likely that the La Nina phenomenon after the El Nino phenomenon will bring
rainstorm to the producing area of palm oil, reducing the yield further.
Therefore, China's market price of palm oil will keep increasing in the future.
At that time, the price gap between it and corn oil will further narrow because
it is not very likely for corn oil price to rebound in the coming future, which
provides a greater opportunity for corn oil to seize market shares.
This
article comes from Corn Products China News 1605, CCM
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Tag: oil corn