The price spread of South American FOB soybean oil from Indonesian FOB crude palm oil (CPO) has surged to record highs, making prompt supplies from Argentina and Brazil less attractive for international buyers.
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Register NowSoybean oil and CPO are competing vegetable oils, so any significant change on prices might impact their market share and, subsequently, the competitiveness of their main exporting regions - South America and Asia, respectively.
On Aug. 8, the Brazilian FOB Paranagua soybean oil price was assessed at $1,370.17/mt for September loading, $417.17/mt above the FOB Indonesia CPO price for the same month, according to Platts data from S&P Global Commodity Insights. That was the largest spread on Platts series.
Regarding Argentina, the FOB Up River September price was assessed Aug. 8 at $1,381.20/mt, $428.20/mt above the FOB Indonesia CPO one, according to Platts data.
Argentina and Brazil are respectively the first and second world's largest exporters of soybean oil while Indonesia leads when it comes to production and overseas shipments of palm oil.
PRESSURED PALM OIL PRICES
Such a wide spread follows recent Indonesian efforts to speed its palm oil exports up. After a momentous ban on shipments in late April and early May, the Asian nation started to face high inventories and, since then, has been rushing to release new export quotas and cut taxes over external sales. All of that has pressure prices lower.
Supply data from Indonesia's neighboring country Malaysia, another key exporter of palm oil, has been also contributing to the bearish tone over palm oil prices.
According to a survey conducted by S&P Global Commodity Insights, Malaysia's palm oil stocks were expected to have risen to 1.78 million mt by end-July, up 8% on the month, amid an increase in production and a dip in exports.
Given this scenario, the Platts FOB Indonesia CPO assessment has fallen 25.8% so far in 2022 while the FOB Paranagua and the FOB Up River soybean oil prices has posted 5.2% and 6% increases year-to-date, respectively.
EXPORT PERSPECTIVES
The current attractiveness of Indonesian palm oil prices compared with competing soybean oil values is not expected to be reverted into higher exports by Indonesia, according to sources.
"The palm oil x soybean oil spread has widened, with palm oil at a significant discount, but logistic issues in Indonesia and Malaysia are restricting the actual on ground demand," Anilkumar Bagani,
commodity research head at edible oil brokerage Sunvin Group, said. According to him, the logistic issues include high freight rates, lacking availability of vessels and "absence of clarity over Indonesian palm oil export duties."
Even global recession concerns have been putting international buyers on a more cautionary stance regarding consumption of edible oils in key countries such as India and China, participants also commented.
Indonesia was expected to export 24.80 million mt of CPO in the current 2021-22 marketing year (October-September), 7.7% lower on the year, according to the latest data from the US Department of Agriculture.
Still per USDA, soybean oil exports by Argentina might fall by 12.8% in MY 2021-22 to 5.35 million mt while Brazilian shipments were pegged at 2.05 million mt, a 62.4% jump on the year, boosted by a cut in local biodiesel mandate that increased the surplus of soybean oil to be eventually sent abroad.