China edible oil futures collapse amid high Indonesia palm oil inventory

Edible vegetable oil futures in China extended losses this week after prices collapsed on June 9 and started a freefall that has lasted more than a week.

Palm oil futures has been the main driver of the current selloff as palm oil stocks in Indonesia jumped since the export ban and prices snapped. Meanwhile, the Indonesia government has granted a quota for exports that will alleviate global supply shortage.

The most liquid contract for palm oil futures on China’s Dalian Commodity Exchange (DCE) slipped more than 3% to touch a four-month low of 9,882 yuan/ton ($1,479/ton). The contract which will be settled in September this year has plunged nearly 19% since June 9.

“Palm oil production origins are having a lot of pressure, mainly Indonesia. And there is no buying after flat prices fell,” one trader at an international crusher told Sitonia Consulting.

Buying interest for Indonesian palm oil from both China and India disappeared after the price drop. “Everyone is waiting” for price to further soften, the same trader added.

“It is likely they export because of high inventory… No one is buying,” said an analyst at a Chinese state-owned futures brokerage.

Weaker DCE palm oil futures had strong repercussion across the edible oil complex in China with the main soybean oil futures also down more than 2% to hit an intraday low of 10,814 yuan/ton ($1,619/ton) on Tuesday, which is also the lowest level in roughly two months.

The contract is down 11% since the start of this bearish trend on June 9.

Rapeseed oil futures on Zhengzhou Commodity Exchange also slumped following palm oil and soybean oil futures, but the selloff came four days later.

The most traded CZCE rapeseed oil futures contract sank 3% last Wednesday and continued to fall in the next four trading sessions. The contract also hit a two-month low on Tuesday.

Although weaker edible oil futures reflect a better outlook for supply in second half of this year, the demand prospect is still dimmed by China’s zero Covid strategy that entails mass testing and lockdowns.