The Edge Markets (05/04/2018) - KUALA LUMPUR: The Malaysian palm oil industry is not expected to benefit from the China’s tit-for-tat move to impose tariffs on US soybean imports in the brewing trade spat between the two countries, according to industry analysts.

To recap, China announced yesterday duty hikes of 25% on a list of 106 signature American products with a total trade value matching the US$50 billion (RM193.5 billion) outlined in Washington’s draft plan.

Beijing’s retaliatory tariff on products including planes, autos, chemicals, whiskey, and soybeans came less than 24 hours after the US government unveiled a detailed breakdown of Chinese products that could be subject to 25% duties.

Soybeans can be considered as one the most powerful weapons in China President Xi Jinping’s trade arsenal. They were the US’ largest agricultural export to China last year, valued at US$12 billion, and a drop in exports could hurt farmers in Iowa and other states who backed US President Donald Trump, Reuters reported.

Meanwhile, China is the world’s largest consumer of soybeans. It is an important buyer of the commodity, mainly crushed into meal as feedstock for its mass livestock population.

For this reason and given China’s high palm oil inventory currently at 670,000 tonnes, Sathia Varqa of Palm Oil Analytics is of the view that palm oil producers might not capture spillover benefits this time around.

Palm oil is a cheaper alternative to soybean oil.

“Palm kernel expeller is the meal part of the palm complex, but the use of this is small compared to soybean as there is lower protein content in palm kernel compared to the latter,” he told The Edge Financial Daily.

As such, crude palm oil (CPO) prices will still face bearish sentiment from the weakness in the soy complex in general and soybean oil in particular, he said.

A local analyst who declined to be named concurred, stressing that near-term impact on CPO prices will most likely only be sentiment-driven and seasonal.

“I don’t see why palm oil should benefit from the latest development. US now having to dump soybeans in other markets and most likely at cheaper prices will exert pressure on vegetable oils including palm,” she said.

She added that CPO prices may be kept under pressure, due to oil palm entering a seasonally higher production cycle, and now with the added bearish sentiment from the duty imposition.

Until and unless there is better clarity from the latest trade development, she is keeping her average forecast of RM2,500 per tonne for this year unchanged.

CIMB Research’s agribusiness research analyst Ivy Ng Lee Fang was more positive, writing in a March 26 report that the tariffs could lead to higher domestic soybean prices in China, which could potentially lead to weaker demand for soybean meal, and in turn, lower soybean oil supplies.

“In the medium term, palm oil could benefit as one of the potential edible oil substitutes in China due to its attractive pricing relative to soybean oil. Stronger demand for palm oil will help support or boost palm oil prices,” she said.

CPO’s third month futures contract closed RM18 higher at RM2,454 per tonne yesterday.

Read more at https://www.theedgemarkets.com/article/chinas-soybean-tariff-unlikely-affect-palm-oil-%E2%80%94-analysts