India buys record amount of soybean oil from China

The trade wars launched by President Trump continue to disrupt supply chains and unbalance markets.

The soybean oil market has experienced an unusual situation, with prices in the US reaching record levels, while China, a net importer of soybean oil, has begun selling its surplus to India (the world’s second largest importer) at prices lower than those offered by soybean producers in South America.

Indian importers bought a record 150,000 tonnes of soybean oil from China as oversupply forced Chinese processors to sell the oil at a discount to reduce inventories that had ballooned after soybean imports hit a record high in May, leading to increased processing and inventories amid weaker demand. As a result, Indian importers bought soybean oil for September-December delivery at a price that is $15-20/t lower than offers from South America.

A surplus of soybean meal and oil is forcing Chinese soybean processors to sell their products to India to reduce inventories, a New Delhi-based dealer said. India, which previously imported soybean oil mainly from Argentina and Brazil, has now started buying from China, traditionally a net importer of soybean and palm oil, thanks to lower prices, he said.

According to another dealer, Chinese processors were offering soybean oil at $1,140/t CIF for December delivery, while South American oil was being offered at $1,160/t.

China’s advantage is given by low logistics costs, as products from South America are delivered to India in over six weeks, and from China in two to three weeks.

India satisfies almost two-thirds of its demand for vegetable oils through private companies importing palm oil from Indonesia and Malaysia, soybean oil from Argentina and Brazil, and sunflower oil from Ukraine and the Russian Federation.

While soybean oil is sold at a higher price than palm oil in India and other countries, it is being offered at a discount in China amid a supply glut. Brokers at Sunvin Group believe that India’s annual demand for vegetable oils is very high, so it could buy even more from China if prices are competitive.

August soybean oil futures on the Chicago Board of Trade fell 2% yesterday to $1,245/t, although prices have risen 20% over the past 6 months on expectations of an increase in the US biodiesel production mandate (which has not yet been approved by the Trump Administration).

Soybean oil prices are being pressured by falling soybean prices, driven by forecasts of a record harvest in Brazil, which will lead to increased supplies to China.

But there is a possibility that when signing a trade agreement with the US, China will agree to guaranteed purchases of American soybeans (which the PRC has not purchased for more than 6 months), which will flood the Chinese market with soybeans starting in September and force local processors to increase exports of soybean oil and meal.

Tags: China, soybean oil, India