Oils and fats market expected to see a wave-like upward trend in the future
After rebounding from a year-to-date low last week, the three major domestic oils and fats varieties as a whole remained in a choppy consolidation this week (July 13-19, 2015). On the 16th, soybean oil, palm oil and rapeseed oil futures varieties fell collectively once again. The main 1601 contracts of soybean oil, palm oil and rapeseed oil futures all opened lower and moved lower, closing down 1.08%, 1.54% and 0.79% respectively at the end of the session.
Industry insiders said that the lack of positive sentiment from overseas markets, ample domestic supply, overall weakness in domestic bulk commodities, and oil prices remaining at low levels all constrained the trend of oils and fats futures prices. Inventories will later dampen futures price trends, but as weather-market speculation heats up, soybean arrivals at ports decline, and the pressure from inventory increases gradually eases, oils and fats futures prices may still see a wave-like upward trend.
“The collective decline of the three major domestic oils and fats futures on the 16th was mainly affected by the lack of positive factors in overseas markets and ample domestic market supply.” said Fangzheng Mid-Term analyst Yang Lina. Because US soybeans are in their growing period, there is no substantive positive theme for weather speculation, and there is a tendency to take profits at high levels. The Malaysian palm oil market also lacks excessive positive factors, with exports in the first half of the month falling month-on-month, causing the market to worry about demand. In addition, domestic supply is relatively ample, resulting in a lack of upward momentum for prices. With large arrivals of oils and oilseeds at ports in June, oils and fats supply increased, soybean oil inventories approached 900,000 tonnes, and palm oil port inventories also rebounded to nearly 600,000 tonnes. Rapeseed oil itself is also in the crushing period after new rapeseed comes to market, lacking excessive support.
The analyst said that domestic bulk commodities as a whole performed weakly on the 16th, and the oils and fats market currently also lacks bullish factors to support a substantial rebound. And crude oil prices remaining in low-level fluctuations also restrained the rebound of futures prices.
“At present, the key factors driving oils and fats futures price trends are the intensity of weather speculation during the US soybean growing period, changes in domestic oil and meal demand, crude oil trends, and fluctuations in capital markets.” the analyst said. Generally speaking, the intensity of weather speculation during the US soybean growing period will have a clear impact on oils and oilseeds. In addition, changes in domestic oil and meal demand will also affect the relative strength of oil and meal prices, thereby influencing oils and fats prices. At present, soybean meal demand is unexpectedly strong, and this round of rebound is obvious, while oils and fats inventories are rising and relative demand is weak. Therefore, strong meal and weak oil will dominate the phase trend.
As for the impact of the El Nino effect, the analyst believes that at present its phased impact is not obvious and has not yet had a clear impact on output, but it is still developing, and the effect may become more obvious during the Mid-Autumn Festival.
For the future market, the analyst believes that downstream consumption of oils and fats tends to be stable, future inventories will suppress soybean oil, and palm oil prices will also follow downward. Therefore, at present, oils and fats futures prices are still in an adjustment period.
At present, there is no shortage in the overall supply of oils and fats, only opportunities from phased relative strength changes, and a trend node has not yet appeared. Therefore, futures prices are expected to remain mainly in a wave-like upward movement. In addition, after the earlier systemic shock, following the rapid bottoming and recovery of oils and fats futures prices, the market needs a consolidation and repair process. Later, as weather-market speculation heats up, soybean arrivals at ports decline, crushing volume shrinks, and the pressure from increasing oils and fats inventories gradually decreases, oils and fats may still see a wave-like upward trend. In addition, the tendency for the oil-to-meal ratio to shrink may also gradually face a reversal, which will also bring opportunities for oils and fats to rise.