China's cold winter in part responsible for the large, and stubborn,
discount of palm oil to rival vegetable oil soyoil, Standard Chartered said, cutting
China imported a record 954,000 tonnes of palm oil in
December – a rise of nearly 50% month on month and year on year – as buyers
scrambled to beat upgraded food safety standards on the vegetable oil at a time
when its prices hit a three-year low.
However, the increase would have been even stronger were it
not for China's cold winter, which has brought many areas their coldest
temperatures in three decades, raising some caution over palm oil, which
freezes at a higher temperature than soyoil.
This is, indeed, why biofuel merchants in temperate
countries offer different summer and winter blends.
in China's weather'
A 66% jump to 1.26m tonnes in Chinese soyoil imports in the
second half of 2012 came "in spite of the large premium for soyoil compared
with crude palm oil", StanChart analyst Abah Ofon said.
The discount of Kuala Lumpur palm oil to Chicago soyoil
started 2013 at a record low for the time of year, averaging more than $300 a
tonne for the first half of last month, compared with an average of less than
$100 a tonne, according to Rabobank.
"This atypical increase in Chinese demand for soyoil can be
explained by the rapid deterioration in China's weather," Mr Ofon said, noting
that temperatures around Beijing were three degrees colder in the last quarter
of 2012 than in the same period of 2011.
"Given that palm oil solidifies at cold temperatures, China's
importers opted for soyoil, further widening the surplus for crude palm oil."
China's cold weather has already been blamed for raising
fears of cold damage among autumn-sown grains, and lifting prices of many
foods, including vegetables, which drove an acceleration in the country's
inflation rate last month.
India and China
Despite the prospect of warmer seasons ahead, Mr Ofon cut
his forecast for palm oil prices in the first three quarters of 2012, citing the
level of palm oil stocks China built up late last year, in anticipation of
tightened rules on levels of stearic acid and peroxide in the vegetable oil.
The stockpiling "suggests that China's demand for processed
palm oil may be more muted in early 2013 ─ at least until current stockpiles
are drawn down and the regulatory environment becomes clearer".
Furthermore, orders from India, the top importer, "could moderate"
thanks to the imposition of a 2.5% tax on crude palm oil imports to protect
StanChart cut by up to 10% forecasts for palm oil prices
early in 2013, downgrades which come the day after concerns over values of the vegetable
oil prompted two brokers to cut forecasts for shares in New Britain Palm Oil.
'Demand likely to
However, StanChart kept at 2,900 ringgit a tonne a forecast
for Kuala Lumpur palm oil prices in the last quarter of 2012, citing depressed
production of other vegetable oils, including rapeseed oil and sunoil.
"With demand for edible oils growing at roughly 6m tonnes a year,
palm oil demand is likely to improve this season," Mr Ofon said.
In the July-to-September quarter, "we expect demand to be supported
by a much stronger global economy, and exports to benefit from greater clarity
on policy in China.
"This momentum will continue in the fourth quarter as yields
and inventories start to moderate in South East Asia."
Palm oil futures for April delivery closed down 0.7% at
2,549 ringgit a tonne in Kuala Lumpur on Tuesday, their first decline in five