China Palm Oil Imports Seen Falling as Economic Growth Slows

Jun 23, 2014 4:13 am ET

(Updates prices in fifth paragraph.)

June 23 (Bloomberg) -- Palm oil purchases by China, the second-biggest buyer, may decline by about 11 percent this year as economic expansion slows and banks tighten lending to commodity importers, a survey shows.

Imports may fall to 5.9 million metric tons in the 12 months to Sept. 30 from a year earlier, according to the median of five researchers and traders surveyed by Bloomberg News. That’s steeper than the 4.4 percent drop to 6.3 million tons estimated by the U.S. Department of Agriculture on June 11.

China’s first-quarter gross domestic product growth slowed to 7.4 percent, the weakest pace since 2012. Declining Chinese purchases may further weaken the price of the commodity traded in Kuala Lumpur, which has slipped 8.2 percent this year as demand for the edible oil fell. It has been a favored vehicle for Chinese traders who use commodities as collateral to obtain credit and this may begin to change amid a probe at Qingdao port that will make banks more stringent about lending, Liu said.

“Palm oil is used commercially rather than in homes, making it more sensitive to the slower economy,” said Liu Xianwu, general manager at researcher China Cereals & Oils Business Net. “With less commodity-finance lending and abundant soybeans, there’s no reason for imports to increase.”

Crude palm oil for delivery in September rose 1.4 percent to 2,477 ringgit ($770) a ton on Bursa Malaysia Derivatives at 4:03 p.m. in Beijing. Refined palm oil on the Dalian Commodity Exchange rose 1.6 percent to 6,034 yuan ($969) per ton, with the most-active contract losing 0.1 percent this year.

Quality Control

China’s palm oil imports rose to a record 6.6 million tons last marketing year partly because traders rushed to get shipments in before the introduction of stricter quality requirements on Jan. 1, Liu said.

Rising imports of soybeans also cut the market share of palm oil, according to Liu.

On average, 19 percent of the yield from crushed soy beans is oil, said Liu. Soybean shipments into China increased 31 percent in October to May from a year ago, customs data show. That added about 2 million tons of soybean oil into supplies of cooking oil, according to calculations by Bloomberg News.