A rising tide is lifting all the boats.
Higher edible oils and fats prices despite mixed economic news.
The Purchasing Managers Indexes (PMI), considered to be reliable indicators for assessing the state of the economy, have globally been on a decline. They measure the predominant direction of economic trends in manufacturing, based on a monthly survey across 19 industries.
PMI for the Eurozone.
Aluminum prices are at their lowest since 2017 (-30%) due to the crisis in the automobile sector which accounts for 30-40% of total demand. Car sales dropped 7% in the first 8 months of the year., but also construction and other demand has been slowing. Other industrial metals which are also very cyclical are also under pressure.
Petroleum prices have been weak but now some optimism over a trade deal between China and the U.S. seems to support to the black gold. Remains to be seen if that also means the end of quantitative easing (lowering of interest rates by central banks) as a good economy doesn’t need low interest rates. Global economic growth is mainly driven by increased prosperity in developing economies like China and India, and is supported by population growth. We see continuous increasing demand for edible oils and fats from India and China; and in northern Africa consumption is expected to increase 3.5% in the coming year. Our mid-term fundamentals look healthy.
Market evolution in the last 2 weeks (January position, refined, in euro):
Rapeseed oil ▲ about € 35-55/t
Soybean oil ▲ about € 15/t
Sunflower seed oil ▲ about € 15-32/t
Palm kernel oil ▲ about € 100/t
Coconut oil ▲ about € 50/t
Palm oil ▲ about € 75/t
Groundnut oil ▲ about € 20/t
Tallow ? nobody knows
EU average butter price stable at € 368/100 kg
source: Thompson Reuters
Where does all this strength come from?
A bullish sentiment for palm oil has developed due to a constructive fundamental picture: In Malaysia a lower than expected palm oil production in the 3rd quarter along with increased Chinese and Indian demand leads to slower stock buildup. This on top of increased domestic demand due to B20 biodiesel implementation next year, which could take up to 15% of production, reducing the need to find markets for palm oil to replace those in Europe. And Indonesia stays on its path to implement B30 biodiesel in early 2020 which leaves less available oil for export. All this combined could lead to not expected tightness in palm oil and to still higher prices.
There is a strong demand from the oleochemical industries, the producers of animal feed and from biodiesel producers in EU and U.S. and insufficient supplies of tallow to satisfy everybody. A growing shortage of fatty acids in EU, usually produced from tallow, was reported and producers have to switch to palm (oh irony!). Tallow-based biodiesel production is increasing due to policies that allow for “double counting” against European biofuel blending mandates when waste feedstocks are used. The tallow market has tightened considerably over the past months. Animal fat is a byproduct of the meat/slaughter industry and production is stable to somewhat lower. There are also concerns that vegan and vegetarian diets could reduce the amount of tallow available in the future. In some parts of the world there is less slaughter or changing dietary habits (e.g. more chicken meat than pork consumption).
The shortage of rapeseed in EU is becoming worse and consumption needs to drop. Margins for biodiesel are showing signs of life and people start to realize that the price needs to do its work to ration demand. According to the ‘JRC MARS Bulletin - Crop monitoring in Europe’, farmers in many parts of Europe had trouble harvesting summer crops and sowing the winter crops for next year’s season, either because it was too dry or too wet. Rapeseed sowing activities were particularly affected. Dry conditions hampered the sowing of winter crops in northern France, Germany, north-eastern Slovenia, Romania, Bulgaria, Hungary and Spain as well as in western Ukraine. Rain arrived too late to complete the sowing of rapeseed within the optimal window, which is likely to result in an even more reduced rapeseed area. The use of neonicotinoids pesticides is no longer allowed in EU and this will also result in lower yields/ha.
Linseed oil is becoming expensive as the availability and the quality of linseed is lower than previous season. In the producing areas, Russia and Kazakhstan, it was hot and dry in July and very wet at harvest in September.
Sunflower seed oil prices have suffered from new crop pressure but that seems to be behind us and already we see the prices being supported by spill over effect of strength in other oils and switching to sun where possible.
Soybean oil prices stable in the U.S. despite weather related harvest delays. It is becoming a boring story in the long running saga of the US-China trade war… Markets react to any news about China buying or not. However, Chinese demand for beans is 10-15% lower compared to 2017 due to the ongoing African swine fever. Traders believe that following the buying of November shipment cargoes from Brazil, little remains to be bought before another Brazilian bumper crop hits the market in February with much cheaper beans. But buyers need to stay alert. The South American crop is not yet made and undergoes sowing delays. Question is also what the policy of the new Argentinian government will be regarding exports. The expected Chinese demand for imported meat will support meal prices (protein for animal feed produced in US, EU, S.A.) and thus soybean prices. Spillover effects from other oils and biodiesel demand (Brazil, Argentina, U.S., EU) may also kick in sooner or later. We even heard of European biodiesel producers buying non-gm soybean oil.
Lauric oil (palm kernel oil and coconut oil) markets continue to trade higher on the back of the bullish palm oil sentiment.
Bent Crude quoted $62.94/barrel on 5th November, up $ 10.68 since 26th December 2018 but still $ 9.70 lower than the high on 26th April 2019. Some analyst believe that oil is on a long-term downtrend and OPEC which is losing market share tries to support prices by lowering production. A recovering global economy would be positive for oil demand. And higher energy prices fuel (non-mandated) biodiesel production.
Don't forget to check out our other bi-weekly updates!
There is some complexity to the business we daily operate in. To help understand the business of being an edible oil and fat producer we've launched this bi-weekly newsletter.
Every two weeks we will share an update about edible oils and fats. Below you can find all our bi-weekly updates!
Or checkout all our newsletters on: https://www.aveno.be/search/label/newsletter
Sign-up for Aveno's newsletters!
Unless otherwise mentioned the crude oil values quoted in these documents are prices landed in EU without import duties, handling, storage, financing, refining, packing, transport or any other cost related to bring the product to market. They are used as market trend illustration. Substitution of oils is possible but different oils have different fatty acid profiles and are not all interchangeable for all applications. One can make biodiesel from all oils and fats but one cannot make mayonnaise from coconut oil. This document is exclusively for you and does not carry any right of publication or disclosure. This document or any of its contents may not be distributed, reproduced, or used for any other purpose without the prior written consent of AVENO. The information reflects prevailing market conditions and our present judgement, which may be subject to change. It is based on public information and opinions which come from sources believed to be reliable; however, AVENO doesn’t guarantee the correctness or completeness. This document does not constitute an offer, invitation, or recommendation and may not be understood, as an advice. This document is one of a series of publications undertaken by AVENO and aims at informing broadly a targeted audience about the edible oils & fats market. AVENO’s goal is to keep this information timely and accurate however AVENO accepts no responsibility or liability whatsoever with regard to the given information.
Read in browser »