Palm oil prices near bottom as U.S.-China trade war hurts soy

-A +A

KUALA LUMPUR/SINGAPORE (Aug 14):The worst may be over for palm oil prices as the U.S.-China trade could may boost demand, helping bring this year’s more than 10% slide to an end.

Palm oil tumbled along with soybean prices, after China imposed higher import tariffs on U.S. soy in an escalating trade dispute between the countries. But increasing biodiesel consumption in Indonesia and palm oil’s widening discount to soy means prices are now bottoming, according to Golden Agri-Resources Ltd, the world’s second-largest grower by area.

“Palm oil prices have room for strengthening,” Richard Fung, the director of investor relations at Golden Agri said on Tuesday, after the company reported earnings. “We are at the bottom of the price range currently and we do see some room for improvement.”

Soybeans have been at the center of the U.S.-China trade spat, with the Asian nation imposing an additional 25% duty on American soy last month. Lower demand from the world’s biggest soybean buyer helped send benchmark Chicago futures tumbling 15% since the start of June. China’s demand for U.S. soybeans has “reduced dramatically” and the drop in prices has dragged on palm, Fung said.

The tropical oil will eventually benefit as buyers look for alternatives to soy, according to Fung. “If China ends up using less soybeans going forward, and gets meals from other crops, there’s potential that China will increase its palm usage relative to soy and that should be positive for crude palm oil prices,” he said.

Crushing margins

Palm oil may trade between 2,100 ringgit (US$513) a metric ton and 2,400 ringgit for the rest of the year, Olam International Ltd chief executive officer Sunny Verghese said on Tuesday, Benchmark futures in Malaysia ended the morning session at 2,202 ringgit a ton. He also said a reduction in soybean crushing in China would prompt buyers to turn to alternatives, with palm oil an option.

The trade war will affect all commodities, although the exact scenario will be difficult to predict, according to Verghese. Agri-commodity firms already benefited in the second quarter, due to cheaper raw material costs and as crushers enjoyed the “best crush margins” in “a very long time,” he said on a media call after earnings.

Wilmar International Ltd, the world’s biggest palm oil refiner, said on Monday that trade tensions boosted oilseed crushing margins. While that helped it post a five-fold increasein second-quarter profit, chief executive officer Kuok Khoon Hong warned a prolonged dispute would negatively impact margins due to lower plant utilisation.