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Record vegetable oil prices are at or near their peak and the global oils and fats market will likely see lower prices for the remainder of this year, Oil World CEO Thomas Mielke said at the Virtual Price Outlook Conference (POC ) 2021 on March 24 .
Mielke said high vegetable oil prices, which have doubled in the past 12 months, were caused by a global production deficit, low stocks and biofuel consumption.
Black Sea sunflower oil prices, for example, nearly doubled to US$ 1,575/tonne on March 22, from US$ 815/tonne on August 3, 2020.
Palm oil (PKO) doubled to US$ 1,480/tonne versus US$ 730/tonne (CIF Rotterdam) in the same period, while Argentine soybean oil was US$ 1,253/tonne versus US$ 782/tonne (FOB) in the same period.
“Indonesian crude palm oil (CPO) more than doubled from US$ 500/tonne in May 2020 to US$ 1,130 on March 23, a nine-year high,” Mielke added.
Despite high prices, the use of palm oil in biodiesel and hydrotreated vegetable oil (HVO) was still high, at 17.3 million tonnes in 2020, which represented 23% of total global palm oil consumption.
In 2020, palm oil accounted for 32% of global vegetable oil production, with soybean oil accounting for 25%.
Global palm oil production is expected to recover by 3.2 million tonnes in Oct/Sep 2020/21. However, low initial stocks, which fell by 2.5 million tonnes, would limit supply growth to just 0.7 million tonnes.
A key factor for Malaysia's palm oil industry has been labor shortages, exacerbated by COVID restrictions that have affected the recruitment of foreign workers, who make up 70% of the plantation workforce. Other important issues were the lack of replanting and a downward trend in production.
Mielke said global consumption of oils and fats will exceed production for the second year in a row.
It predicted consumption for October 2020/September 2021 at 240.28 million tonnes, against production of 239.77 million tonnes. In October 2019/September 2020, consumption was estimated at 237.2 million tonnes against 235.49 million tonnes of production.
Global vegetable oil stocks were also at unusually low levels, with a stock-to-use ratio of 12.8%, while biodiesel policies were an uncertainty to watch, he said.
Mielke forecast global biodiesel and HVO production at 47.5 million tonnes for 2021 (January-December) against 45.3 million tonnes in 2020. Around 17.9 million tonnes of palm oil would be used as raw material for this year's production, and 12.6 million tons of soybean oil, which were large volumes, he said.
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Its predicted prices for 2021 (January to December) are:
Soybean oil (Argentina, FOB): US$ 1,100/ton, with an average Oct/Dec price of US$ 1,000/ton.
RBD palm oil (Malaysian fob): US$ 950/tonne, with an Oct/Dec average price of US$ 840-880/tonne.
Coconut oil: US$ 1,380/tonne.
PKO: US$ 1,310/tonne.
“Prices are likely to remain elevated and above average throughout 2021, but will weaken from current levels if global oilseed production recovers in 2021/22 on the assumption of higher plantings and normal to favorable weather conditions and a global production surplus becoming likely.
Godrej International director Dorab Mistry said 2021 will be a year of two halves, with the April-June period presenting a tight supply and demand situation.
“The post April-May price curve will be downward sloping. Favorable weather will be key and high prices will ultimately lead to high production.
“Prices could fall sharply in July-August if rainfall is adequate in North America.”
Mistry predicted that Bursa Malaysia Derivatives (BMD) palm oil prices will remain at 3,300 Ringitt (US$ 798) until June, and then at a minimum of 2,700 Ringitt (US$ 653) from July.
He noted that the election of US President Joe Biden has given a big boost to green fuels, especially biodiesel in the US. Fossil fuel refineries in the US were switching to biofuel/HVO production and the market had seen Europe sending canola oil to Canada because US biodiesel demand was eating into North America's edible oil supply.
“Canadian canola oil is the safety valve of the US domestic market and rapeseed oil is therefore the most likely candidate to maintain its high price in the second half of 2021.”
LMC International President James Fry also noted that Biden's US$1.9 trillion stimulus package would lead to the return of inflation and higher interest rates, making speculation in commodities less attractive.
He said the vegetable oil market is in a bubble.
“La Niña hit all oilseed crops, pulling the supply of vegetable oil below expectations at the beginning of 2020. Demand has been even more surprising. After a strong shock in the second quarter of 2020, consumption has held up well. Far from allowing demand for biodiesel to decline and avoiding the food versus fuel dilemma, major governments are maintaining or even increasing (in Brazil and Colombia) biodiesel regulations, increasing the price of food oils as a result.
“This inflationary pressure is being increased by money printing machines, financing government deficits and helping families survive income losses triggered by COVID-19. When interest rates are zero, credit created in the economy needs to find a home, and one of those homes is the commodities market, with buyers hoping to ride the speculative bandwagon.”
In the future, Fry said high prices would ration food demand and oil crop production would slowly recover.
“The recovery in Southeast Asian CPOs production will lead to a slow build-up in palm oil stocks.”
As a result, the EU CPO-Brent crude oil spread is expected to fall from a crazy US$ 700/tonne now to US$ 450/tonne in Q4 2021, which would mean EU CPO closed around US$ 925/tonne.
“Allowing for shipping and export taxes, the DMO would be close to RM3,300 (US$ 798),” he concluded.
Source: OFI Magazine
This text was automatically translated from English.
