Oil futures extended early highs on the Dalian Commodity Exchange (DCE) yesterday. Among them, palm oil played the best performer on bullish news from its top production countries. Malaysia announces that it will work with Indonesia to challenge the European Union restriction on the use of palm oil in biofuels, and they will make efforts to promote the use of more biofuels. Indonesia is hopeful to move to B30 biodiesel from January 2020 after the country’s shift to a mandatory B20 program in September 2018. To ensure Palm Methyl Esther (PME) suppliers meet their allocated quota and distribution obligations, Indonesian government has enforced a fine of IDR 6000 per liter (about US$480/tonne) for companies unable to meet the contracted obligations. And crude palm oil is only for spot month in the production regions, so PME biofuel suppliers have to make bulk purchases of palm olein in FOB markets, especially for shipments in January to March 2020.
Fig.: Palm Oil Futures on the DCE
Fig.: Soybean Oil Futures on the DCE
In the meantime, domestic soybean oil market has presented stronger trading than expected since the National Day holiday, which has bucked the trend in the previous years. The market has been trading well for six days in row, with 64,650 tonnes clinched yesterday. Soybean oil stocks drop by 1% to 1.34 mln tonnes this week, and mills now have a backlog of contracts in November and December.
Fig.: Domestic Soybean Oil Daily Trading Price and Volume
Furthermore, the USDA previously also trimmed its estimates for US soybean production and stocks. And China is buying up on US soybeans after an improvement in bilateral trade relationship. In the week ended Oct. 15, hedge funds and other money managers expanded their net long position in CBOT soybean futures and options to 49,029 contracts, an increase of 42,528 in the previous week. CBOT soybean prices are buoyed to maintain a strengthening trend, thus lifting the import cost. And this is also a support for domestic soybean oil market.
Domestic oil futures all jumped higher thanks to palm oil, soybean oil market is trading very well for days in row, and soybean import cost is also lifted. Mills now are screaming for higher prices. Besides, buyers will get down to purchases for the New year’s Day and the Spring Festival from late November. Therefore, soybean oil market is predicted to keep its strengthening trend for some time to come. But there are also some hurdles. China’s monthly soybean imports are expected to exceed 8 mln tonnes in both November and December. Domestic mills have significantly picked up soybean crush to 1.72 mln tonnes last week in order to guarantee soybean meal supply, and will probably raise it further to 1.75 mln tonnes this week. And investors may sell out their positions if Argentine soybean oil posts import margins again on the DCE. Overall, soybean oil market is predicted to swing frequently when moving higher from the bottom.
