Stiff competition with Indonesia, which still commands the lion’s share of palm oil exports to China, as well as an ample supply of soybean oil have been named as factors which may affect Malaysia’s ambitions.
CIMB Investment Bank regional head of agribusiness Ivy Ng told Xinhua that China’s demand for palm oil depends on how competitive the price of crude palm oil is against soybean oil.
The report cited data from Bloomberg, which said CPO trades at about US$80 per tonne lower than that of soybean oil, which is below its 10-year historical average discount of US$140 per tonne.
“From a historical standpoint, the discount is not as wide or attractive relative to historical average discount. It does not make it very attractive for them (Chinese) to buy more than historical average consumption now,” Ng was quoted as saying.
According to the report, while soybean has recorded five consecutive years of good production, China’s demand for palm oil has been stagnant for the past 10 years.
What palm oil it has accepted has come largely from Indonesia, which exported 1.3 million tonnes to China against Malaysia’s 650,000 tonnes from January to May this year.
Last year, Indonesia’s exports to China were also significantly higher than Malaysia’s, at 2.6 million tonnes versus 1.8 million tonnes, the report said.
“Even though China’s edible oil import could continue to increase, Indonesia’s competitive pricing could well give it the edge over Malaysia,” OCBC economist Barnabas Gan was quoted as saying.
According to Reuters, on June 30, the benchmark palm oil contract for September delivery on the Bursa Malaysia Derivatives Exchange was down 0.4% at RM2,459 a tonne at the close. It earlier rose to RM2,494, its highest since June 19.
However, the report added, palm oil is down 7.1% in April-June from the preceding quarter, and has shed a fifth of its value since the start of the year.
Palm oil shipments from Malaysia fell 8.9% for the full month of June from the previous month, according to data from cargo surveyor Intertek Testing Services.
The report noted that demand typically slows after Ramadan, due to the higher palm oil usage for cooking during the festive period that starts with the fasting month prior to the Aidilfitri celebration.
It added that palm oil prices are also impacted by movements in soybean oil prices.