China’s move to impose tariffs on imported U.S. soybeans may boost palm oil’s draw in the short term, traders and analysts say, as the spread between palm and soyoil is expected to widen as the latter becomes more costly in Beijing.
Rising soyoil prices in China, which relies heavily on soybean imports, will make palm oil a cheaper, more attractive option.
“China’s local soyoil price will go up. The spread will be favourable to palm,” said a Kuala Lumpur based futures trader.
Soybeans were among 106 U.S. products that China said on Wednesday it would hit with 25 percent tariffs, less than 11 hours after U.S. President Donald Trump’s administration targeted 25 percent tariffs on some 1,300 Chinese industrial technology, transport and medical products.
Benchmark palm oil prices in Malaysia slumped More than 2 percent at one stage following Beijing’s announcement, tracking weaker U.S. soyoil prices. But palm oil ended firmer on Wednesday and stretched gains to a one-month high on Thursday.
China is the third-largest market for the tropical oil produced mainly in the Southeast Asian nations of Indonesia and Malaysia.
The May soyoil contract on China’s Dalian Commodity Exchange rose as much as 1.3 percent on Wednesday before Chinese markets shut on Thursday for a public holiday.
Its spread against benchmark palm oil futures is currently at $278 per tonne, and at $254 versus refined, bleached and deodorized palm olein prices.
China, however, consumes more soyoil than palm oil, and imports more than 60 percent of soybeans traded worldwide to crush for meal to support its livestock industry.
A potential disruption in China’s soybean flows as it switches to South American supplies could help palm oil fill in any supply gap in soyoil, albeit briefly.
“The impact to palm is minimal because China needs soymeal, which is a primary soybean crushing product,” said William Simadiputra, analyst at DBS Vickers Securities.
“Monthly palm imports will increase by 5 percent to close the gap, by conservative estimates. But I don’t see a structural change in how China purchases palm oil moving forward.”
Source: Reuters (Reporting by Emily Chow; Editing by Manolo Serapio Jr.)