CPO to gain from China’s soybean import tariff
The Star online (05/04/2018) - PETALING JAYA: Crude palm oil (CPO) stands to benefit from China’s latest move to impose 25% tariff on soybean imports from the United States, say analysts.
In the global edible oil market, CPO is seen as a major rival to soybean oil. Both commodities can be substituted for use in the food-processing industry and are often seen competing in major edible oil markets such as China and India.
China is the world’s largest soybean importer and also the biggest buyer of US soybean, with trade estimated at US$14bil last year.
According to analysts, the higher tariff by China on US soybean was a big slap in the US agriculture industry’s face. Bloomberg reported that soybean futures on the US Chicago Board of Trade yesterday dropped as much as 5.3%, while wheat and corn futures also slid on news of China’s higher import tariff on US soybean.
Meanwhile, reflecting the positive sentiment on the CPO market, the CPO futures contract for June on Bursa Derivatives yesterday reversed its losses to close RM18 higher at RM2,454 per tonne in late trade.
China was the third-largest export market for Malaysian palm oil in 2017, with an intake of 1.92 million tonnes after India (2.03 million tonnes) and the European Union (1.99 million tonnes), an increase of 1.9% from 1.88 million tonnes.
This increase was due to the lower import of soybean (as bean) from the US for crushing, recording a decline of 2.4% to 32.85 million tonnes in 2017 compared to 33.66 million tonnes in 2016.
MIDF Investment Bank senior research analyst Alan Lim Seong Chun told StarBiz that China’s reciprocal tariff on the US soybean imports is positive for the CPO price, “as we expect higher China demand for palm oil in the long run”.
He expects the 25% tariff to lead to lower purchase of soybean from the US, leading to a lower crushing volume of soybean in China.
“In the long run, we expect a lower soybean oil, which is a by-product of the soybean crushing supply in China.
“On the other hand, palm oil stands to benefit from this situation, as it is a common substitute for soybean oil for use in the food-processing industry.”
Meanwhile, CIMB Investment Bank in its latest report also expects China’s tariff on US soybean to have a positive impact on CPO.
Its head of Malaysia research and regional head of agribusiness research Ivy Ng said: “China accounted for 52% to 76% of US soybean exports in the past two years.
“The concerns over potential trade barriers on US soybean by China could lead to weaker soybean prices.”
She also viewed the new tariff by China as making US soybean less competitive, with China potentially shifting some of its demand for soybean to South American farmers.
“The potential additional tariffs on US soybean could lead to higher soybean prices in China, and higher domestic prices could potentially lead to weaker demand for soybean meal.
“This, in turn, could lead to lower soybean crushing activities in China, resulting in lower soybean oil supplies,” explained Ng.
In the medium term, she pointed out that palm oil could benefit as one of the potential edible oil substitutes in China due to its attractive pricing relative to soybean oil.
“In our view, stronger demand for palm oil will help support or boost palm oil prices,” Ng added.