Edible oil prices fall, oil companies may shift to deep processing of multiple oil varieties
Recently, monitoring results from the National Grain and Oils Information Center show that from January to October 2014, China imported a total of 56.8440 million tons of soybeans, a year-on-year increase of 13.75% compared with 2013. At the same time, the average price of imported soybeans reached a low point in October. The decline in edible oil prices is regarded as a point of industry reshuffling and upgrading, and in the future more oil companies will choose “quality improvement and upgrading of oil products” to maintain competitiveness.
Edible oil prices fall, oil companies may shift to deep processing of multiple oil varieties
Industry insiders point out that more than 80% of the soybeans used for oil pressing on the Chinese market are imported. The price of imported soybeans began to fall sharply from July 2014, while import volumes continued to increase, which is the main reason for the decline in edible oil prices. The decline in edible oil prices is regarded as a point of industry reshuffling and upgrading, and in the future more oil companies will choose “quality improvement and upgrading of oil products” to maintain competitiveness.
The wave of domestic edible oil price cuts that began in October 2014 is still continuing and shows a trend of expansion.
A reporter recently visited supermarkets such as Carrefour in Wuchang and Wushang Supermarket and found that edible oils from brands including Fulinmen and Arawana are still being promoted at reduced prices, with some cuts reaching as much as 20%.
An industry insider said that this reduction in edible oil prices was mainly due to a sharp drop in international oilseed raw material prices since the second half of 2014. At present, the decline in edible oil prices is mainly due to oversupply, as soybean output in the United States and South America is very high and import volumes have increased.
The price cut wave sweeps across the country
“We have been adjusting our supply prices almost every week recently, and the cumulative price reduction since this year's Spring Festival has reached 20%.” On January 3, the relevant person in charge of the edible oil brand Sea Lion told reporters that since last year, the edible oil market has turned from a bull market lasting many years to a bear market.
The person in charge said that after National Day in 2013, edible oil prices began to enter a downward channel, and since August and September 2014 the decline has been especially sharp, exceeding 10%. Leading edible oil companies, including Arawana under Yihai Kerry and Fulinmen under COFCO, have already publicly cut prices several times in a row.
After announcing in May last year that soybean oil prices would be reduced by 15% due to lower raw material prices, in October of the same year Yihai Kerry announced that prices for Arawana brand blended oil, rapeseed oil and soybean oil would be cut by 10% to 13%. Fulinmen announced price cuts at almost the same time. “Now in edible oil sales, besides competing on products and services, the most important thing is still competing on price.” The relevant person in charge of the Sea Lion brand said that Arawana and Fulinmen are major domestic small-package edible oil brands, and after they announced price cuts, other brands had to follow in order to retain market share.
But for some packaged edible oil companies, following the price adjustments comes at no small cost. “The raw oil we ordered earlier has not yet arrived at port, and prices have already fallen again. If it keeps falling like this, the survival of the company will be a problem.” A distributor engaged in edible oil wholesale expressed some concern when talking about today's edible oil market.
Because soybean oil prices are closely tied to the international futures market. At present, several large companies generally use futures hedging profits and other channels to offset losses in the spot market, but for small and medium-sized enterprises, especially those that rely on imported soybean oil for packaging production, this is very difficult.
According to Guo Qingbao, editor-in-chief of China Oils and Fats Network, the decline in raw oil prices is related on the one hand to the international market, as 80% of the soybeans China uses for edible oil come from imports. Earlier the United States announced that soybean output in the next two years would reach a record high, and soybeans from South America and Canada were also abundant, setting a global record for soybean output. On the other hand, it is also related to oversupply in the domestic market. “Soybean meal produced during the oil pressing of imported soybeans is an important source of feed. In the past two years, demand for soybean meal has continued to grow steadily. Driven by demand for soybean meal, crushing enterprises still import large quantities of soybeans, causing oil and fat supply to exceed demand.”
Guo Qingbao gave an example, saying that according to customs statistics, from January to November 2014, imported soybeans reached 62.87 million tons, an increase of more than 10% over the import volume in the same period of 2013, but the total amount of imported vegetable oil decreased by more than 10% from the same period last year, from 7.3 million tons in the same period of 2013 to 6 million tons. This shows that domestic market demand for soybeans exceeded that for oil and fat.
Transformation toward deep processing of multiple oil varieties
On the one hand, supply remains high, while on the other hand demand is weakening.
In recent years, due to the rapid development of minor edible oils such as sunflower seed oil and corn oil, the market for soybean oil has been squeezed, and demand growth is slowing. Although the decline in soybean oil prices will drag down other minor oils, companies can still profit from minor and high-end edible oils, which has prompted many edible oil companies in recent years to vigorously develop multiple oil varieties.
In fact, since 2013, the domestic edible oil industry has already seen three consecutive waves of price cuts, but high-end oils and healthy oils among them have not been affected. A reporter saw at the Carrefour supermarket in Wuchang that prices for high-end oils such as sunflower oil remained unchanged, and a Mullar pure sunflower oil (4 liters) was only symbolically reduced by 0.1 yuan in this round of price cuts.
A senior industry figure said that the decline in edible oil prices is regarded by the industry as a point for industry reshuffling, upgrading and raising citizens' awareness of healthy oil use. In the future, more oil companies will choose “oil product quality improvement and upgrading” and a multi-oil-variety strategy.
This person's analysis has been recognized by the market. Affected by the wave of edible oil price cuts, the corn oil market is also sluggish, and Xiwang Food, whose main business is corn deep processing, launched two new products this year in succession: olive corn oil and sunflower seed oil.
Arawana has already taken the lead in the multi-oil-variety strategy. Tao Xi, director of Arawana's Brand Management Department, introduced that for non-GMO edible oil alone, Arawana offers 23 products, such as Arawana corn oil, sunflower seed oil, plant sterol corn oil, peanut oil, rice oil, camellia seed oil, olive blended oil, small-pressed rapeseed oil, sesame oil and so on. “With the richest variety, we fully meet consumers' increasingly diverse product needs and have also gained the greatest market returns.” In the recently released 2014 Fortune Global 500 ranking, Arawana's parent company———Wilmar International ranked 239th, placing third in the global food production industry. This is the third consecutive year since 2012 that Wilmar International has been among the top three in the global food production industry.
Related companies that rely on soybean crushing for performance have also begun to attach importance to the development of multiple varieties and small- and medium-package edible oils. Dongling Grain and Oil stated that it will accelerate the development of high-value-added products related to soybean processing, such as medium-package oil and fat products, including soybean oil, palm oil and blended oil; develop small-package oil and fat brand products; and increase investment in specialty oil production. In the first half of 2014, the entire soybean crushing industry suffered severe losses, and Dongling Grain and Oil lost as much as 341 million yuan. The main reason for the loss was that in the first half of the year, the purchase prices of raw materials for soybean crushing and the sales prices of finished products were seriously inverted.
No obvious short-term rebound expected
Recently, monitoring results from the National Grain and Oils Information Center show that from January to October 2014, China imported a total of 56.8440 million tons of soybeans, a year-on-year increase of 13.75% compared with 2013. At the same time, the average price of imported soybeans reached a low point in October. Statistics from the General Administration of Customs show that in October 2014 the average price of imported soybeans fell to 3268 yuan/ton, down 4.36% from the average import unit price of 3417 yuan/ton in September, setting the lowest value since the beginning of 2012.
A report by Zheshang Futures pointed out that the current inventory pressure on China's three major oils and fats remains relatively large. As of December 2, 2014, domestic port palm oil inventory was 596,000 tons, and commercial soybean oil inventory was 1.21 million tons. Under the expectation of an overall increase in oil and fat supply, inventories face the threat of rebounding.
Industry insiders point out that inventory pressure on oils and fats may not improve until small-package oil stocking demand starts in the spring of 2015. Generally speaking, within one or two months before the Spring Festival, consumer demand for oils and fats is significantly boosted, thereby driving prices to form a rebound trend. In 2014 there was a leap ninth month, and the Spring Festival is later than in previous years. By then the process of oil and fat destocking will accelerate, which will provide support for oil and fat prices.