Palm Oil Price Outlook 2024: The Chinese Market Perspectives

Prepared for: POC 2024

Ryan Chen
Cargill Investments (China) Limited
6 March 2024
REVIEW OF 2023 CHINA PALM MARKET (RBD PALM OLEIN)

• 2023 annual Olein import at 4.2 million MT, up 20.5% YoY.

Realized 2023 Olein import is below the 2020-2021 volume
which was around 4.6 million MT. It is also below my projection
on POC2023 presentation by 400KMT.

• 2023 annual Olein demand at 4.1 million MT, up 28% YOY due
to better catering services sector performance after the removal
of Covid-19 lockdown measures and a bigger POBO price
spread in favor of Olein. However, demand was also below the
earlier expectations especially during 2023Q4.

• End 2023 stocks were very heavy as a result of bigger import yet
soft demand. Chinese importers bet the El Nino event and
demand recovery so overbought Olein during 2023H2.

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OUTLOOK OF 2024 CHINA PALM MARKET - WHERE ARE WE TODAY

• Market entered 2024 with relatively heavy vegoil stocks especially on

Palm and RSO. However, stocks starts to fall quickly from February
and likely this trend will continue. As a result, SBO cash basis
remains very firm with inverse rolling forward. Palm cash basis also
goes up gradually to positive territory.

• The stocks built over the last 6 month are mainly Olein and RSO due
to the expectation of better demand and price bullishness. With
sentiment changed, margin went worse and import flow slows. With
seasonal demand recovery, stocks level is already balanced and may
get tight during 2024Q2.

• Import margin is negative on all vegoils so limited import flow as of

now.

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OUTLOOK OF 2024 CHINA PALM MARKET – CONSUMPTION RECOVERY PACE REMAINS THE KEY

• 2023 witnessed a positive YoY demand growth as Covid-19 mobility

control measures were lifted so economy re-gained momentum. However,
time still needed for further recovery. Consumption recovery pace will be
the #1 factor to watch from the demand side.

• 2023 witnessed a positive YoY growth on urban resident’s income and

expenditure, together with the economy growth. However, 2023 QoQ
income growth rate was quite flat. A slowing down property market gave
some headwinds on the economy growth. With government providing
more supportive measures, economy may have a better performance in
2024 and contributes to more income growth, which will help vegoil
consumption.

• More patience is needed to examine if real demand and business

confidence could recover to Year 2019 level.

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OUTLOOK OF 2024 CHINA PALM MARKET – SUFFICIENT SUPPLY OF COMPETING OILS

• 2024 China soybean crush would be at 6 year high due to

recovered animal feed demand.

• 2024 China imported canola seeds crush would be close to 4

million MT due to decent Canadian canola seeds crop. However,
the heavy domestic rapeseed oil inventories put a cap on the
China seed imports.

• 2024 imported soybean oil volume may slightly decrease but

rapeseed oil volume would grow further.

• There is no shortage from competing oils, rather supply would be

relatively sufficient. More importantly, soybeans and canola price
had a big drop YoY which makes nearby Olein less competitive
on relative values. If this continues, Olein may lose demand to
other vegoils.

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OUTLOOK OF 2024 CHINA PALM MARKET – POBO & PO/LARD SPREAD ON HIGH SIDE OF THE RANGE

• China cash POBO spread is getting narrower. Though Olein remains

competitive for nearby but spread is not too far to switch demand from
Olein to Soyoil. Against animal fat, Olein already lost all the feed
demand.

• Forward POBO spread on DCE May23 is on the lower side of the

historical range. At current spread, AMJ Olein demand will be rationed
to 200-250Kmt/month instead of a normal seasonal demand around
350-400Kmt/month.

• POBO spread in China (cash or DCE futures) could be extreme

because Soyoil price is more related to soybean cost and meal value.

• With today’s global SnD picture, Palm may not afford to lose too much
demand for too long in China.

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OUTLOOK OF 2024 CHINA OLEIN MARKET – IMPORT PROJECTION & COVERAGE

• If current POBO spread (cash and futures forward) stays throughout

the year, 2024 Olein import could drop to 3.1 million MT from 4.2
million MT in 2023. Low 2024H1 import due to less competitive
POBO spread will be the main reason.

• We may see more diversified importer’s profiles in 2024. Also due

to the cash flow and import volume flow requirements yet limited
back-to-back import margin, many importers changed their style
from import margin driven to flat price or cross commodity spread
driven. Physical CNF cargo becomes a more trading style
underlying.

• 2024 forward coverage (excluding the so-called in-house trades) is

relatively low for Apr/May/June position. However, sitting with low
inventories, time left for importers to cover is rather limited.

• Forward import margin based on DCE Olein futures price and CNF
quote remains at a relatively large disparity, so market needs to do
more work to connect the new trades.

• Hedge fund’s trading behavior continues to bring big price volatility

and therefore affects the physical buying pace.

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OUTLOOK OF 2024 CHINA PALM MARKET – BIO TRADE FLOW & TREND

• Year 2023 witnessed another strong import growth on

POME/PAO/PFAD into China at 2.2 million MT, up 32% YoY. In the
meanwhile, UCO/FAME export reached 4 million MT, up 19%.

• Though Olein price is not competitive to other FAME feed stocks, big
import flow of POME/PAO/PFAD brought a general support to palm
price.

• With a heavy FAME stock in the EU and more scrutiny on the

sustainability certifications, FAME exports during 2023H2 dropped
and replaced by more UCO exports. New trade flow into the US is
also UCO demand driven not FAME demand driven. If this trend
continues, China may shift more exports from FAME to UCO and
therefore POME/PAO/PFAD’s import growth will be slowing down.

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OUTLOOK OF 2024 CHINA OLEIN MARKET – BEYOND FUNDAMENTALS

• There are a growing number of macro/quants funds to trade DCE Palm

futures as the underlying to express their commodity view. Many of them
are also trading a basket of commodities and equities. They put more
weights on macro and technical indicators than detailed SnD when
making trading decisions. We addressed this point in POC2023 but over
the last 12 month, their influence on this market grows bigger. When
there is no strong fundamental input, their order flow could determine the
short-term market directions. Normally they don’t trade against
fundamentals so when they realize the SnD change and want to
turnaround their position, they could bring big market volatility given the
relatively big position size they take. At the moment they have a relatively
small position on DCE Palm futures.

• Open interests of DCE May2024 Palm futures are off the highs at 368K
contracts. It is also 100K contracts lower than May2023 futures contract
during same time last year. Market structure is quite clean.

• Correlation between DCE Palm futures and Wenhua Commodity Index

has been low recently, showing the fact that Palm is following its own
SnD rather than macro.

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DISCLAIMER

This communication has been prepared by Cargill Investments (China) Ltd. (“Cargill”)
based on information available to it, including information derived from public sources
that have not been independently verified.

Cargill does not make any representation or warranty, express or implied, in relation to
the accuracy, correctness, completeness or reliability of the information, suggestion,
opinions, or conclusions expressed herein.

The content of this communication is for informational purpose and shall not be
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