Friday 29 Mar 2024
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KUALA LUMPUR (May 21): China’s palm oil demand is expected to remain flat in 2021.

Following a conversation with Malaysia Palm Oil Council (MPOC) Shanghai Chief Representative Desmond Ng, UOB Kay Hian analysts Leow Huey Chen and Jacquelyn Yow said in a note that China’s plan oil demand is expected to stay at 6.8 million tonnes in 2021, unchanged from 2020, with the palm stock forecast to remain at 870,000 tonnes by year end.

Ng also said demand for refined, bleached and deodourised palm olein (RBDPL) wll increase due to the wide discount against soybean oil (SBO) since November 2020.

He pointed out that in the first quarter of this year (1Q21), total palm oil imports to China rose 24%, with the bulk of these imports comprising RBDPL and RBD palm sterain (RBDPS).

“The increase in imports was mainly due to: i) a high discount for RBDPL against SBO; ii) a recovery in the hotel, restaurant and catering (HORECA) sector; and iii) an increase in demand from the oleochemical industry,” they said.

Meanwhile, Ng said market expectations of a recovery in the swine sector might be optimistic as the breeding profit margin had dropped significantly due to a larger pork supply and higher feed cost, according to Leow and Yow.

“The swine sector might not recover fully by end-2021, leading to low soybean crushing and less soybean oil (SBO) availability. The profit margin is negative for small herd farmers (last week, it was at 794 yuan/head) due to an increase in feed cost and a drop in pork prices.

“Thus, swine breeding is expected to stagnate if not decline. As a result, growth in oil meal demand is expected to slow down. So, soybean meal demand and supply might not be as high as forecast at the beginning of the year,” they added.

According to them, Ng also pointed out that China had announced a technical blueprint for the reduction of corn and soybean meal in swine, broiler and layer feed — with the proposed substitute of corn and soybean meal in feed possibly going as high as 100%, subject to the availability of alternative feed ingredients.

As such, this would limit soybean demand and impact growth in crushing activities and subsequently SBO supply. The substitution impact is likely to be marginal in 2021, while more substitution may take place from 2022.

“With CPO prices continuing to soar above RM4,500/tonne since early May 2021, plantation companies’ share prices have also started to take off along with the CPO price movement. However, we maintain 'market weight' on the sector as we remain concerned about the impact of the limited supply situation on companies’ earnings and demand uncertainties, especially from India,” they said.

Edited ByLam Jian Wyn
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