A couple of tough trade-related measures including border control measures taken by China recently have unnerved the global vegetable oil and oilseeds trade and industry.

Benchmark soyabean prices had stayed firm over the last few months (highest $17 a bushel in September) on a combination of supportive factors including tight supplies, strong US export sales and crush data (the highest in three years). Concerns over wet weather and lagging pace of plantings in Argentina were also supportive.

However, after rising to a six-week high by mid-December, prices have come under pressure on news of China cancelling export sales of US soyabean amounting to about 840,000 tonnes recently.

Tougher Import norms

Of greater impact potentially is the report that China has decided to impose tough new regulations for import of vegetable oil with effect from January 1.

According to trade reports, the new regulation would include documentation relating to the vessel’s last three cargoes, in addition to the normal safety specifications including health parameters, agricultural chemical residues, contaminants and so on.

Some of the quality specifications have been tightened.

Until now, vegetable oil import consignments that did not meet Chinese standards were allowed to be discharged under supervision for further refining.

However, a week from now, new food safety measures will come into force for vegetable oil shipments that arrive in China’s ports.

This means cargoes that do not meet the national standards run the risk of a rejection at the port.

China is among the world’s largest importers and consumers of vegetable oil.

It is believed that Malaysian Palm Oil Board’s request for an extension of six months for implementation of the new regulations has not been acceded to.

Trade intermediaries pointed out that since 2009 almost 95 per cent of Malaysia’s palm oil shipments to China have faced smooth clearance.

Well-stocked

China is said to be holding huge stocks of vegetable oils, particularly palm oil at the ports. According to R. Ramamoorthy of AR International, an international trade intermediary, in the last two weeks, China’s inventory has expanded by 10 per cent and current coastal stocks of refined palmolein are estimated to have crossed one million tonnes.

At the same time, China has sufficient internal stocks to meet its immediate requirement. A slowdown in shipments to China is sure to exert downward pressure on palm oil prices which are struggling to find upward traction at around Ringgit Malaysia 2,300 a tonne.

Worse, there is widespread apprehension in Malaysian government and industry circles that other major importers may follow the Chinese footsteps and tighten import norms.

(This article was published on December 30, 2012)
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