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Lower Oilseed Stocks in China Support Margin and Triggered Import & Crushing

As reported by Oil World, the significant oilseeds import volume in Oct/Feb 2020 was meant to replenish the dwindling oilseeds stock in the country towards the end of last year (Table 1), as the US-China trade dispute and China-Canada diplomatic tension both affected the supplies of soybean and rapeseed to China.  At the same time, crushing margin was also very much unfavourable (mostly negative) prior to October 2019, due to the ongoing after-effect of African Swine Fever (ASF) outbreak started in Aug 2018.

Table 1: End Stock of Major Oilseeds and Oils in China

End of Soybean Rapeseed Palm
  Soybean SBO SBM Rapeseed RSO PO
Sep 2019 3,964,000 1,134,200 635,000 133,000 386,400 653,600
Oct 2019 3,254,000 1,098,600 509,000 210,000 391,300 708,550
Nov 2019 2,537,000 924,200 410,000 131,000 317,800 780,000
Dec 2019 3,875,000 790,800 526,000 103,000 344,500 842,700
Jan 2020 4,112,000 762,500 437,000 129,000 297,400 1,024,200
Feb 2020 3,438,000 1,092,000 444,000 189,000 300,600 1,050,100
Mar 2020 2,163,000 952,800 250,000 247,000 262,800 878,800

Source: Shanghai Pansun

Nevertheless, the record low soybean and soybean meal stock has revived the margin into positive territory since last November and triggered the market interest to import more soybean. The jump in import also attributed to the easing tension between China and US while the trade negotiation was going on and allowed some volume of US soybean to enter China without needs to pay for the punitive tax (25%) since November 2019.  

Table 2 & 3 showed the import of oilseeds growth mainly came from soybean and majority of the increase took place in Q4 2019.  While the increase in Jan-Feb 2020 import was able to response to the need of dwindling oil meals stock in the country, the growth was actually very insignificant (+28,000 MT). 

With the stock level of SBO gone up and RSO’s remain almost unchanged by end Feb 2020, while both SBO & RSO imports in Jan-Feb 2020 dropped (Table 5), it indicates that the demand of soybean oil was not strong in Jan-Feb 2020. Similarly, the import and stock figures also shows that the demand for palm oil (PO) was weaker at the same period. This is primarily due to the covid-19 outbreak where the demand from catering sector dropped significantly and expected to lower the demand of oils & fats by 1.25 million in Q1 2020, which led to the built-up in stock.

Table 2: Soybean and Rapeseed Import in Oct-Dec Period (MT)

  Oct-Dec 18 Oct-Dec 19 Change (Vol) Change (%)
Soybean 18,024,067 24,001,392 5,977,325 33.2%
Rapeseed 1,137,241 387,905 -749,336 -65.9%
Total 19,161,308 24,389,297 5,227,989 27.3%

Source: Chinese Customs

Table 3: Soybean and Rapeseed Import in Jan-Feb Period (MT)

  Jan-Feb 19 Jan-Feb 20 Change (Vol) Change (%)
Soybean 11,832,982 13,514,349 1,681,367 14.2%
Rapeseed 1,077,603 423,814 -653,789 -60.7%
Total 12,910,585 13,938,163 1,027,578 8.0%

Source: Chinese Customs

Table 4: Major Vegetable Oils Import in Oct-Dec Period (MT)

  Oct-Dec 18 Oct-Dec 19 Change (Vol) Change (%)
PO 1,601,474 2,358,077 756,603 47.2%
SBO 176,549 219,101 42,552 24.1%
RSO 371,922 479,846 107,924 29.0%
Total 2,149,945 3,057,024 907,079 42.2%

Source: Chinese Customs

Table 5: Major Vegetable Oils Import in Jan-Feb Period (MT)

  Jan-Feb 19 Jan-Feb 20 Change (Vol) Change (%)
PO 1,171,508 882,223 -289,285 -25%
SBO 128,537 111,256 -17,281 -13%
RSO 224,501 228,105 3,604 2%
Total 1,524,546 1,221,584 -302,962 -20%

Source: Chinese Customs

Demand for Oil meals Remain Unchanged for 2020

Based on the assessment made by various analysts, the ASF outbreak was under control since Q3 2019, but it takes times for the swine farm players to revive the production of swine as the number of sows has dropped more than 30% last year. It is expected that the number of sows to recover to the pre-ASF outbreak level by end of Q3 2020, which will then only be able to raise the number of swine back to pre-ASF level. In another word, the demand of feed for swine will only able to reach pre-ASF level by Q4 2020, resulting in 20% drop of swine feed for the full year of 2020.

On the other hand, as poultry industry is not affected by ASF outbreak, the shortage of pork products which has supported the price of all meat products, has also encouraged the higher production of poultry meat and laying poultry. This resulted in the increase of number of poultry and led to higher feed demand by poultry farm in 2019.  This trend is expected to continue into 2020 as the meat price remain high and encourage the poultry farm to expand its operation. As such, the demand of feed from poultry sector is forecasted to increase by 18% in 2020. Hence, the net effect of the demand for animal feed will be somehow equal to that of 2019, indicating that the demand for oil meals will also roughly be the same as 2019. However, as mentioned earlier, since the recovery in swine sector will only take place in Q4 2020, the demand for oil meal in Q2 2020 may still stay weak.

Nevertheless, as crushing margin has improved on the back of very low SBM stock (250,000 MT as of end Mar 2020 vis-à-vis >1.0 mil MT during the peak) in recent months, some crushers may take position to boost crushing activities regardless of the short term demand.

Prepared By: Desmond Ng 

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