Weekly Highlights (9 May – 15 May)

Section I : Weekly Highlight on Fundamentals

World soybean supply shortfall in 2012will lead to overall lower oilseed supply
Oil World reports that due to the sharply reduced opening soybean stocks (down 21 Mn T from last year), world supplies of soybeans will fall sharply below the level attained in 2011. Production will recover by just about 6 Mn T in the northern hemisphere and relief will only come from March 2013 onward only if South American soybean production increases by 31 Mn T should our earlier estimate materialise. The world crop season 2011/12 is characterized by an unprecedented decline in world soybean production by 28.4 Mn T to 237.5 Mn T. It is the first season in which production is declining in both North and South America. Combined world production of sunflowerseed, rapeseed and cottonseed is expected to decline by 1 Mn T in 2012/13 in contrast to a year on-year boost of 7.5 Mn T in 2011/12..

Oils & fats imports by Turkey increased significantly in Q1 2012

Imports of oils & fats by Turkey increased significantly from a year earlier in Jan/March 2012 owing to higher domestic requirements as well as lower imports and crushings of oilseeds. In addition, part of the sharp increase in sunflower oil imports occurred in response to higher demand for re-export of refined sunflower oil to neighbouring countries, primarily to Iraq. Imports reached a record 376,000 T in Jan/Mar 2012 compared to 248,000 T a year ago, with most of the increase on account of sunflower oil and palm oil. Sunflower oil imports jumped to a new high of 183,000 T in Jan/Mar 2012, virtually all of which came from Russia and Ukraine driven by very large export sales of refined and partly bottled sun oil to neighbouring countries, reaching a total 133,000 T in Jan/Mar, mainly to Iraq

Section II : Other Weekly Highlights

1. Asia Pacific

a. China

China extend U.S. Soybean buying on Brazil losses

Oil World said that China, the world’s biggest soybean consumer, will “increasingly shift” purchases of the oilseed to the U.S. in coming months after South American supplies tightened, Oil World said. The U.S. is seen exporting at least 2.3 million metric tons of soybeans to China from June to August, compared with 600,000 tons a year earlier, the Hamburg-based researcher said in a report. Shipments are seen gaining momentum in the following six months, which will reach a new record for the September-to-February period.

Brazil, the world’s biggest soybean exporter, sent record amounts to China from January to April this year, leaving the South American country’s stockpiles down about 13 million tons from a year earlier at the end of last month. China’s soybean imports for the 2011-12 marketing year are seen totaling 56.5 million tons, almost 1 million tons more than expected a month earlier. Purchases are seen climbing to at least 60 million tons in the following season and are seen potentially even higher if the country’s production falls below the expected 12.5 million tons, a 20-year low.

China plans sale of soy reserves

China, the biggest soybean consumer, plans to sell about 3 million metric tons of the crop from reserves to reduce its stockpiles, according to sources who declined to be identified as they were not authorized to comment publicly and the auctions may start by the end of May. In fact, supplies stored in Northeast China were harvested around 2008-09. The Government will sell this batch of soybean priced at around 3,850 RMB per tonne, much lower than spot port’s price of 4,300 RMB per tonne.

China foreign trade growth slows in April

China’s foreign trade rose 2.7 percent year-on-year to $308.08 billion in April, with a surplus of $18.42 billion, the General Administration of Customs (GAC) on May 11th. The growth rate represents a month-on-month slowdown and surplus has widened from the $53.5 billion logged in March, according the GAC data. From Ajn – Apr 2012, China’s total foreign trade rose 6 percent from a year earlier to $1.17 trillion, with exports and imports up 6.9 percent and 5.1 percent to $593.24 billion and $573.94 billion, respectively.

China saw trade surplus of $19.3 billion during the January-April period, the GAC said. The 10-member Association of Southeast Asian Nations, China’s third-largest trade partner, posted a 6.7 percent increase in bilateral trade, amounting to $117.65 billion in the first four months. In breaking down of imports, soybean import volumes added 22.3 percent to 18.15 million tonnes, with its average imported price dipping 7.6 percent year-on-year to $532.9 per tonne

b. Philippines

Philippine Govrnemnt to test Jatropha Biodiesel offered by company from Malaysia
The government is subjecting to fuel standard testing the jatropha biodiesel of Malaysia-based Bionas which is offering to supply what it claims to possibly become the world’s first jatropha biodiesel. The Department of Energy (DoE) is expected to evaluate under a Philippine National Standard (PNS) on bio-diesel Bionas’s biofuel that will ensure that the jatropha biodiesel eyed to be supplied by Bionas Philippines Corp. (BPC) complies with standards.

BPC launched in the last quarter of 2011 a jatropha oil processing plant in Salug, Zamboanga del Norte. Its parent firm in Malaysia claims to have a global leading brand in jatropha plantation and biofuel with two pro-cessing and blending plants. “Malaysia is still introducing it to the market. It has to undergo DOE testing which is required for all prod-ucts. I think we’re more on the side of caution,” said Philippine Agricultural Development and Commercial Corp. (PADCC) President Marriz B. Agbon in an interview.
While the Philippine government has already shelved research and development (R&D) for jatropha biofuel, BPC is reported to be optimistic about its jatropha bio-diesel. “It is offering to supply bio jet fuel to a local airline,” said an industry official. Agbon said the government has not renewed interest in R&D on jatropha biodiesel as the thrust is more on augmenting local production of ethanol, the biofuel mix with gasoline. That is rather than methyl ester biodiesel as the country has its own production of coconut biodiesel. “If you look at the big picture, we have a bigger shortage for ethanol,” he said.

BPC had an extensive launching and seminar of jatropha planting all over General Santos City, Tawi Tawi, Sulu, Zamboanga City, South Cotabato, and Mindoro since 2009. Bionas claims to have assets of 600,000 acres of planted area and 313 nurseries and collection center in Malaysia and a capacity of 850,000 tons of crude jatropha oil. While the Philippines has a bio-fuel policy that mandates coconut methyl ester mix at less than five percent, Bionas has a B20 Biodiesel composed of 50 percent diesel, 30 percent Bionas fuel, and 20 percent Bionas diesel additives.

2. Europe

a. Russia

Sharp increase in sunflower seed prices in Russia

In the past two weeks the price of sunflower seed has increased by 1,425 rubles, reaching a record high of 13.5 thousand rubles per MT. This in turn led to increased prices for crude sunflower oil. The main reason for the sharp rise is a favorable situation of the export market, the high world market prices of oilseeds and crop failure in South America. According to “SovEkon, export prices are hovering around $1,210 to $1,220 per ton (FOB Black Sea). Another reason for the rise believed to be the lack of winter rapeseed, which can be processed in the summer. Upon Russia’s accession to the WTO high duties are expected to be cut, boosting exports.

Vladimir Putin backs ratification of WTO commitments this year

Russia’s new President, Vladimir Putin has dismissed calls to delay the nation’s accession to the World Trade Organisation (WTO). Putin stated that a delay of even a year or two would be tantamount to a statement of refusal from Russia to join the global trade body, after what has been a fractious 17-year process. The comments were in response to concerns about the impact Russian membership would have on Russia’s domestic industries, after the nation agreed to substantially ease trade tariffs in its accession package.

On average, the final legally-binding tariff ceiling for the Russian Federation will be 7.8% compared with a 2011 average of 10% for all products. The average tariff ceiling will be 10.8% for agriculture products (13.2% currently) and 7.3% for manufactured goods (9.5% currently). In accordance to the WTO agreement, Putin signed a decree which cuts Customs duties on soybeans set 5%, but not less than 8.5euros per 1,000 kg. This Decree shall enter into force 30 days after its official publication and acts starting of September 30, 2012, inclusive. Earlier, the duty was 20% but not less than EUR 35 / t.

3. Sub Continent

a. Pakistan

Pakistan plans to boost oilseed production

Pakistan spends a huge amount of foreign exchange on import of edible oil to bridge the wide gap between domestic production and consumption. According to Director Crops, National Agriculture Research Council, Akbar Shah Mohmand, a sum of Rs200 billion per annum can be saved on edible oil import by raising output of domestic oilseeds. The domestic demand for edible oil is around two million tons of which about 70 per cent is met through imports.

Edible oil is the second most import item after petroleum. There is a need for the government to pay attention to cultivation of import substitute products. At present more than a dozen oilseed crops are grown in the country. Canola, introduced in 1985-86 on experimental basis, is now cultivated over 800,000 acres. Canola and sunflower are planted in rain-fed areas in Punjab, particularly in Rawalpindi and Chakwal districts. However, the major crop among them is cottonseed which yields up to 57 per cent of edible oil.

With the support of the government, not only canola but olive can also be grown in Potohar region and areas in Balochistan like Khuzdar, Loralai, Quetta, Pishin, Zhob and Sibi etc. The weather conditions (high rain falls) in northern part of Punjab and Hazara and in Khyber Pukhtoonkhwa have made these areas suitable for olive cultivation. Despite large potential, oilseed crops have suffered from different kinds of disincentives. Growers do not get adequate support price for oilseeds and their access to funds is very limited and in some cases it is completely restricted. Farmers also incur major losses due to improper market infrastructure.

The policymakers should develop a strategy to boost production of oilseed crops. The area which is found profitable for the cultivation of oilseed crops should be declared `Oilseed Zones` Growers should be encouraged to use their land for oilseed cultivation and assured of good return on it.

Call to make palm oil refining industry more viable

At a recently held seminar jointly organized by Pakistan Edible Oil Refiners Association (PEORA) and Malaysian Palm Oil Board (MPOB) themed “Palm Oil Refining Competency,” speakers emphasized that need for the government to take certain measures to make palm oil refining industry more viable in Pakistan. This sector can play a vital role in saving considerable valuable foreign exchange for the country. The speakers also emphasized that the government may review their duty structure not only to make the refineries viable but also to reduce the cost of ghee and cooking oil which will ultimately benefit the general population.

The Vice Chairman PEORA, Rasheed Janmohammad in his presentation pointed out the obstacles in the way of smooth and viable operation of the refineries in Pakistan and informed the participants that the pertinent areas are anomaly in duty structure, issuance of timely quota of CPO export from Malaysia and uninterrupted supply of crude palm oil to Pakistan. He explained that refining industry of palm oil in Pakistan have ample capacity, are not running on optimum level due to above reasons. If the issues are addressed on the concerned levels will not only help the refining industries in Pakistan to run smoothly but will ultimately save considerable foreign exchange for the country.

b. India

Sunflower oil gains share as vegetable oil imports soar

Sunflower oil imports have begun to rise, while the country has brought in canola oil for the first time. According to the Solvent Extractors’ Association of India 56,000 tonnes of canola oil have been imported in the last three months. The imports have been made mainly due to lower local crushing of rapeseed due to higher prices in the domestic market. Also for the first time, safflower oil has been imported in small quantity.

Vegetable oil imports jump 95% to 7.27 L tonne in April

A sustained slowdown in domestic oilseed crushing activity has led to an increase in the import of vegetable oil in recent months. India’s vegetable oils imports jumped by 95% to 7.27 lakh tonnes in April against 4.35 lakh tonnes in the year ago period according to industry data just released. The share of refined palm oil is likely to increase as the current Indonesian inverted duty structure encourages larger export of refined oils over crude oils. The quantity of edible oils imported in April this year stood at 8.97 lakh tonnes, while that of non-edible oils was 27,930 tonnes in the same period.

4. Middle East

a. Turkey

Turkish imports of oils and fats increased again for Q1 2012

Imports of oils and fats as well as oilmeals rose again significantly from a year earlier in Jan-Mar 2012 owing to higher domestic requirements as well as lower imports and crushing of oilseeds. In addition, part of the sharp increase in sunflower oil imports occurred in response to higher demand for re-export of refined sunflower oil to neighbouring countries, primarily to Iraq.

Oilmeals – Imports were boosted to 580,000 MT in first quarter of 2012 (against 289,000 MT last year), with most of the increase registered in soybean meal to 318,000 MT (against 86,000 MT). Higher imports of oilmeals were required to offset the reduced domestic production and satisfy rising demand. We expect total Turkish oilmeals consumption to continue to rise to a new high of 3.8 million MT, up 7% from last season.

Oils and fats – Imports reached a record 376,000 MT for Q1 2012 (vs. 248,000 MT a year ago), with most of the increase on account of sunflower and palm oil. Sunflower oil imports jumped to a new high of 183,000 MT, virtually all of which from Russia and Ukraine. Imports were driven by very large export sales of refined and partly bottled sunflower oil to neighbouring countries, reaching a total 133,000 MT Q1 2012, mainly to Iraq.

b. Iran

US$ 24 billion approved by cabinet to import basic goods

First Vice President, Mohammad Reza Rahimi announced that the cabinet has approved a bill allocating US$24 billion for import of basic goods such as rice, cooking oil, meat, rice, etc. The announcement came as food prices started rising over the past few weeks. This has been done in order to provide basic goods and regulate the market and we will see its effect on modifying prices in the market in the future.

Section III : Weekly Data

1. Palm Oil Prices

• Average CPO prices traded lower this week by RM121.73 to RM3,397.13 against RM3,275.40 attained the previous week. Crude palm oil futures on Malaysia’s derivatives exchange suffered their sharpest fall in more than a year on Monday, closing at a three-month low as failed talks to form a new Greek government heightened fears about the euro zone’s debt crisis. Market sentiment was bearish as talks to form a coalition government in Greece stalled, pushing the debt-laden country closer to bankruptcy and a possible exit from the euro zone.
• Malaysian palm oil exports for first 15 days of May picked up by a slight 0.7 percent to 599,044 tonnes, according to cargo surveyor Intertek Testing Services, reflecting a still-healthy demand for the edible oil. Another cargo surveyor Societe Generale de Surveillance meanwhile reported a 7 percent drop in exports to 564,477 tonnes, thanks to lower shipments to China and India. But traders said the lower exports did not weigh on prices much as they do not necessarily indicate weaker demand and especially in an already-oversold market.
• Malaysia’s April palm oil stock level fell 5.4 percent to 1.85 million tonnes from a month ago, its lowest stock level in 11 months. Despite this, palm oil price fell sharply on Monday, as mounting political uncertainty in Greece and worry about the prospects for growth in China added to a sense that the demand outlook is worsening.
• Brent Crude Oil dropped to four-month lows below $113 a barrel on Monday, on worries that election results in Europe could thwart the single currency’s drive to contain its debt crisis, and after weak U.S. jobs data prompted concern about oil demand growth.

2. International Prices

• Average Crude Palm Oil price (cif Rott) traded lower by US$45 from US$1,151 to US$1,106. CPO discount vis-à-vis SBO increased to US$131 this week compared to US$126 the previous week. Apart from CPO, SBO (fob, Bra) price was also not spared from the global downward trend where the price also fell to US$1,151 on 14 May 2012.
• There were continued concerns over political risk in Europe that could disrupt vegetable oils demand and pressured by selling activities as investors locked in profits continued in the downward movement of global oils & fats prices. The weak industrial production data in China also weighed on the demand outlook for the edible oils.

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