China’s RSO-SBO spreads continue to converge

The price spreads between China's rapeseed oil (RSO) and soybean oil (SBO) futures have continued to narrow since the start of 2023, as prices falls of RSO outweighed SBO losses.

The primary May RSO futures on the Zhengzhou Commodity Exchange (ZCE) fell from 10,723 yuan/t ($1,559/t) on 3 January to Yn8,743/t on 4 April, hitting a floor of Yn8,298/t on 24 March. The losses were driven by accelerated rapeseed and RSO imports.

China has imported large-scale rapeseed volumes, the raw material for RSO, since late 2022 that led to RSO futures losses on the ZCE. The country's rapeseed/canola imports totalled 1.06mn t during January-February, quadruple the 259,267t received over the same period last year, GTT data show.

The increases largely came from Canada and Russia, despite the latter's export ban on rapeseed. Russia had exclusively opened a border port in Baikal for rapeseed exports to China, which was in effect until 31 March, according to industry participants. Canada remains China's largest rapeseed provider, with a 90pc share of January-February imports. Rising production in Canada enabled more rapeseed for export, as the country recovered from drought-induced production losses in 2021-22.

China also received bulk RSO from Europe during January-February because of competitive prices with ample supplies. European oilseed association Fediol reported record crushing volumes of 1.58mn t in the EU in February, exceeding a five- and 10-year average for the month, Argus' agricultural analytics arm Agritel estimated. Market participants projected an additional 520,000t crushed by non-Fediol members in Europe in February, implying further increases in RSO supplies and pressuring RSO prices.

Argus-assessed prompt RSO fob Dutch Mill prices fell to €820/t on 23 March, the lowest since October 2022. Lower prices tempted demand for China-bound deliveries, with some 100,000t European RSO sold in March, industry participants said. Chinese customs also reported a year-on-year increase of 106,060t of RSO imports during January-February, largely driven by higher volumes from Russia and the EU.

Chinese SBO futures on the Dalian Commodity Exchange (DCE) also showed a similar trend since late February, with the primary May DCE SBO contract settling at Yn8,410/t on 4 April, well below Yn8,950/t on 24 February. The prices fall moved in tandem with soybean futures on the Chicago Board of Trade (CBOT), which slid from $15.30/t over the period to $14.20/t on 24 March, the lowest level since mid-February when May replaced March as the primary contract. Soybean futures on CBOT have rebounded with lower than expected soybean ending stocks and 2023-24 planting acreages outlook in the US, settling at $15.10/t on 3 April.

This season's soybean production in Brazil is estimated at record level of 151.4mn t, according to Brazil's national supply company Conab, despite bad weather conditions during the major growth period. A bumper soybean harvest in Brazil will lift global soybean supplies, pressuring CBOT soybean futures last month, as well as global soy complex prices.

Buying boost

Supported by lower soybean prices, Chinese buyers have stepped up purchases from earlier this year with large arrivals expected from April-onwards. Crusher operators are poised to process these Brazilian soybeans shortly after their arrival to avoid stock deterioration with warmer weather, considering the products' high moisture levels. This implies higher soymeal and SBO supplies in China after mid-April, weighing on futures prices on the DCE.

A total of 20mn t of soybeans are expected to arrive during April-June, participants said, amounting to SBO output of 3.7mn-3.8mn t nationwide, based on the percentage of oil content of soybeans.

But despite rising SBO supplies in the short term, China's SBO futures falls are slower than RSO, resulting in narrower prices spreads between RSO and SBO from Yn2,148/t in December to Yn333/t currently for the primary May contract. This is beneficial for RSO consumption (see chart).

China's total vegetable oil imports is projected to rise by 46pc from a year earlier to 8.43mn t, said the country's agriculture and rural affairs ministry, with additional SBO and RSO supplies from soybean and rapeseed imports. This suggests ample vegetable oil supplies in the domestic market this season, implying a lower likelihood of price increases across different categories.

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