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POC 2021: Check the brief summary of the main topics discussed at the conference

Posted by Guilherme Bezzarro

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The recession of 2020, due to the COVID-19, is the worst recession the world has seen since the Second World War. Currently, all countries are living through uncertainty and speculation. According to the lectures presented at the conference, the collective opinion is that the solution for the current scenario would be mass vaccination, once 70-80% of the population is immune, the pandemic would become "controlled" and the world could go back to normal.

2021 began with slight improvements in some areas, however, it is believed that the recovery time should still last for few years, mainly due to the widespread unemployment caused by the pandemic. Bankrupt companies, banks losing profits and closing producer credit lines, as a result, price volatility in the commodities market has reached historic levels.

Palm and Lauric Oils

The palm oil remains essential to the Malaysian economy, it is the most produced oil in the world. Its production represents 41% of the total oilseed production in the world and will be more relevant in the next years. One of the main crops, it is the most profitable production in terms of investments for planted area, using 11% less land than other competitors to produce the same oil’s quantity.


2020 was a very volatile year for this segment. In the beginning of the pandemic with the market uncertainties, the prices initially dropped, but it quickly became a year with one of the highest prices in history. It is believed that 2021 will probably remain the same in terms of pricing; the conference experts mentioned that the palm market should take into account 3 essential issues:

Labor: The work on Palm planting and cultivation is mostly manual, and considering the worsen of Covid spreading and the borders closing, the palm countries were not able to import the labor force needed for planting, what caused, among other factors, lower offer.


Quality and Technology: In the last few years, the palm market has suffered reprisals because of contaminants, but today there are processes that guarantee the control of 3mcpd, Glycidol and Mosh/Moah minerals. Those researches are advancing, following the regulations of many countries that get stricter every year, when the topic is food safety.

Sustainability: 40% of world palm production comes from small producers that hardly have any certification or strict quality control. It was commented that there should be subsidies to help those producers reaching traceability levels. This work is in progress, with certifying bodies, as RSPO.

At such a delicate moment in terms of production, inventories and prices, the scenario is expected to be better in Q3 and Q4 of this year. It is estimated a recovery of 3,2 million tons in world production, with Indonesia being obviously the precursor of this event.

In Lauric market, the 2020 production was lower than expected, mainly on Coconut, where the market was totally affected by lockdown, typhoons and floods, duplicating the prices compared with last months, and the PKO variation, reaching one of the higher numbers in history, $325/MT. The copra reception in Indonesia and Philippines remain limited in the beginning of this year, but an improvement is estimated for the second half, when the PKO production will be also better, starting a stock recovery.

Biodiesel and Oleochemicals

Although the Biodiesel market has increased its demands, exports have dropped dramatically. Producing countries are keeping the products in the domestic market. Indonesia, for example, a world reference in the production of Biodiesel, had a 24% increase in the consumption of palm oil for production (through the implementation of the B30 mandate). However, their exports fell by more than 80%, leaving the entire volume in the domestic market. In Malaysia something similar happens, however they are on the B20. These high mandates serve to fill the hole left by the blockage of Palm Oil in European Biodiesel.

As a reference, 80% of the volume of Palm Methyl Ester (PME) exports from Malaysia and Indonesia go to Europe. By the end of 2030, Europe intends to ban them in 100% and thereby increase the demand for waste oils (UCO, POME, PAO, PFAD, CNSL) and make room for HVO, a renewable diesel, which is presented as one of the promising alternatives for energy transition, since it is a renewable fuel produced only from vegetable and residual oils. It is estimated that by 2025 its use will be tripled, supported by the media campaign in the E.U against palm for fuel.

In the oleochemicals market, the increase in vegetable oil prices is usually a major concern, since a large part of the cost of oleochemicals is in the raw materials. It is believed that it was one of the sectors most affected by the current freight crisis as it is not something only in the sea, but in all chains. In addition to freight being three times more expensive than at the same period last year, there is still great difficulty in finding room in vessels. For this market it was an inconvenience, considering that the freight exceeded the price of the product, which is already of low added value. As a result, many suppliers are not exporting, thus maintaining the local market, which has the consequence of increasing inventories because local demand does not absorb all production.

Oleochemical products are bio-friendly, which is why this market was not so much at the mercy of this period of crisis. Hygiene and cleaning industries, such as P&G, for example, had their shares valued, because with the pandemic the population started to consume more cleaning products and it is believed that this demand will continue even after this period, for good. For 2021, the oleochemicals market is expected to continue experiencing increase in demand for such items, as sanitizers, disinfectant wipes and all cleaning products.



For the fatty acid segment, the demand is also good especially in cleaning sectors, however competition with tallow and other palm products ends up taking away its room, but it is still a promising market. The animal feed sector remains robust and is also taking up a large part of this volume. In addition to the high logistic values, the main problems for fatty acids today are the costs and competition for the usage of the raw materials such as: palm, palm kernel, coconut, tallow, soy and canola. The demand for fatty acids has always followed the economy closely.

For Glycerin, since it is a by-product of biodiesel and its production is steady, it benefits the global demands as an example of the Chinese market, which by far is one of the main destinations, but due to the complicated situation of freight this also becomes a very challenging task. In the long term, there is a concern with the replacement of biodiesel and the supply of HVO (renewable biodiesel) because if it does happen, it will not generate glycerin as a by-product in its process, so the question is: Will we need synthetic glycerin again?

In the line of fatty alcohols, due to the need for cleaning caused by the pandemic, the demand is also good. The market for C16 and C10 is very strong and business with C1618 is much firmer than usual. However, high levels of raw material prices increased the price of fatty alcohols, which previously traded at USD 1,214/MT is now around USD 2,000/MT. In addition, the sector suffers from transport problems causing shortages of vessels and containers in several ports, affecting the supply chain.

Some oleochemical plants are cutting their production and some customers are looking for alternative products. The technology of the surfactant is under pressure, and in the personal care sector, the search is for alternatives to the chemicals of sulfate alcohol. Climate change is impacting the production of palm fruits and other crops, thus affecting several businesses. This influences synthetic alcohol, which is about 25-30% of the total alcohol supply, and that would be a bonus for the natural alcohol business, which is tending to gain strength. 

Consumers are now responding more to environmental needs and bio-friendly materials, such as oleochemicals. As mentioned at the Conference: "Cleanliness has skyrocketed, a new normal".


Soft Oils

Analyzing the pre-pandemic scenario, vegetable oils were already on the rise, due to the increase in raw material demand for Biodiesel, mostly from Malaysia and Indonesia. With the pandemic and the beginning of the lockdown, for the first time the food market did not increase its demand, however, there was an exponential growth in the fuel industry. To get an idea of the tremendous appreciation of vegetable oils in the market, in the last 5 years, prices have already risen by about 70%. Only in the last 12 months, these values have more than doubled, especially in special oils.

Soybean oil represents 25% of world production and its demand is extremely high, mainly due to the Biodiesel market. What will influence the price in the coming months will be the performance of the harvests and the Chinese demand. Regarding the harvests in Brazil and Argentina, there is still speculation on the numbers due to climatic concerns, but in general, it is estimated a Brazilian production of 131M and an Argentine production of 44M tonnes. If that happens, China should maintain a high volume of imports, which in the past few months has already been a record. However, they are expected to concentrate in the first half and some decrease on the second.

In addition to grains, China is also expected to increase the soybean oil import numbers. With the reduction in pig creation in the local market, the surplus volume of soybean meal is very high, so they are expected to process less grains and focus on oil imports.

With China less active in the import of soybeans in the second half and the United States in full harvest, one can expect a possible increase in US stocks, which today are among the lowest in the last 7 years. Worldwide, a greater demand for oil is expected this year, so the forecast is that the global crushing of soybeans will rise between 10-11 M tonnes more than the year 2020.

Regarding sunflower oil, in 2020 it played a relevant role because its price increase influenced all other oils. When palm oil and soybeans started to rise and lack in the market, many buyers made the replacement for sunflower, causing greater demand. Then, the Black Sea harvest that concentrates the world production of this item, had a failure due to climatic conditions. This whole scenario led the sunflower to its highest price in the last 5 years.




In order to have a clearer idea of this scenario, in October / November 2020, production began delayed, since normally in September we can already see several shipments taking place. Although the planted area has grown compared to the past harvest, seed production was much lower than expected. This is mainly due to bad weather during planting, leaving the soil dry to absorb all the necessary nutrients. With damaged production, we could only expect a loss in world production of sunflower oil, which remains today at approximately 5 million tons.

With the delay in the harvest and prices rising, buyers were quick to set prices. Several operations from November to March were planned, mainly with China and India as main buyers. In turn, producing countries applied new export taxes, which helped keep prices high.

In March, it was expected that with the beginning of the Latin American harvest, prices would drop, placing more product in the market. Unfortunately, the numbers were also not positive, and helped keep the price of sunflower oil high, always with great volatility.

Due to higher prices, consumers replaced their needs for other oils, such as canola, soy and palm. Sales forecasts for the Black Sea are not fulfilled; several defaults happen, for not being able to keep the prices negotiated in advance, generating even more instability in this market, so much so that it was the only product in which none of the experts dared to give price forecasts for Q4.

Although the other special oils did not have a great focus, kindly note some opinions of our experts:

Corn Oil: The rise in the price of corn oil is a constant that added to the low supply and high demand, causes the market balance to fade. With most players positioning future offers, and buyers afraid to suffer with supply chain disruption, the market is firming up its demand and securing its volumes. The focus from now on will be on the 21/22 corn crop in the USA, where the weather will be crucial to determine the course of prices.

Groundnut Oil: This product had also been impacted by the increase in prices of other vegetable oils, reaching its highest level since 2016, but driven, mainly, by some particular situations at exporter countries, besides strong Chinese demand. It is considered that price can suffer some corrections during this year, but shall still be kept at high levels, which will depend, of course, on the Chinese crop and its results, as it accounts for more than 40% of world production.

Canola Oil: Like the rest of the special oils, it suffered a big price increase, but it was not as sharp as the other oils. In the past two years, China has been its largest importer and as a result has ended up depleting the local market and has made Canada for the first time an importing country. Even with the good European harvest, the price of canola oil is expected to remain firm, as many sunflower buyers are replacing their demand for canola, as already mentioned.

In conclusion, our experts agree with the opinion of Thomas Mielke and James Fry, that if vegetable oils have not yet reached their peak, they are very close to it. They should remain at this level until the end of Q2 and there is a slight trend in the fall in prices in the second half, however even with this fall, prices should remain high throughout the year. The determining factors that will dictate in which direction the market will go are: The US soybean crop (June and July), East Asian palm and sunflower in the Black Sea (September, October). In addition, it is worth monitoring the vaccination rate in the world, the level of unemployment and the economic recovery.


Por: Tiago Vicente, Michel Malvasi, Renan Fernandes, Muriel Malvasi, Laura Pereira, Zainab AlhamwiMelinda Rodrigues e Thiago Prianti | Aboissa Commodity Brokers

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