Falling vegoil price in China struggles to combat retail price inflation

Cash and futures prices for soybean oil and rapeseed oil in China have been edging lower in recent weeks but retail prices for vegetable oils continue to strengthen.

The most liquid soybean oil futures contract on Dalian Commodity Exchange closed at 8,410 yuan/ton (US$1,322 per ton) on Friday, down more than 13% from the previous peak of 9,710 yuan/ton (US$1,527 per ton) in late October this year.

Cash soybean oil price also retreated during the same period, down about 1% from the record high of 10,500 yuan/ton (US$1,751 per ton), according to data from China’s Commerce Ministry.

At the same time, the main rapeseed oil futures on Zhengzhou Commodity Exchange settled at 12,175 yuan/ton (US$1,914 per ton), down about 3% from the record high of 12,600 yuan/ton (US$1,981 per ton) last week.

Rapeseed oil cash price slipped marginally off the record high to 13,200 yuan/ton (US$2,075 per ton).

Despite the recent price fall, vegetable oil prices are still hovering at a high level. The soybean oil price has gained more than 16% year on year, and rapeseed oil cash price is up 3% on the year.

Weaker cash prices reflected recent deflationary measures taken in China with state stockpilers releasing soybean oil reserves to the market and companies buying soybean oil cargoes from overseas.

But these actions seemed fruitless against the backdrop of a macro inflationary environment with the Chinese central bank cut bank reserve ratio earlier this month to boost cash liquidity in the world’s second largest economy.

Soybean oil retail prices for domestic consumers continued to climb to a new record high in recent weeks, hitting nearly 13,000 yuan/ton (US$2,044 per ton) last week.

Moreover, rapeseed oil retail price also jumped to a new high of 16,240 yuan/ton (US$2,553 per ton) last week.

Nevertheless, global vegetable oil market supply faced unexpected challenges this year with lower palm oil output in Southeast Asia due to labor shortage, and severe delays across the global supply chain.

A push for more biofuel usage in the US by the Biden administration also escalated the global vegetable oil supply shortage.