Edible oil futures sank across the board in China on Tuesday, continuing a month of losses, as traders feared more supply would be dumped into a market where consumption is already weak. China is expected to release crude soyoil from reserves for refining, a move that would depress refined soyoil prices and help combat inflation ahead of the Olympic Games next month and traditional festivals in the fall.
But the release, if it happens, would come at a time when soyoil and palm oil stocks at ports are already high and pressuring prices. Soyoil futures have lost more than 13 percent this month, palm oil futures 26 percent and rapeseed oil 15 percent. All three peaked in the first quarter, contributing to inflation on fears that snow would hurt the rapeseed crop, and were lifted again in June by strong crude oil prices.
"Domestic stocks are very high - there is nowhere to put incoming cargoes so everyone says they have to release, or they can't unload more," said a trader in Beijing. "But if they release, it's not at all stabilising for the market. It's a big negative factor." China earlier this month bought about 400,000 tonnes of soyoil and up to 1 million tonnes of soybeans arriving in the third quarter for reserves.
But traders had also imported more soy cargoes to capitalise on a reduction in import taxes to 1 percent, which will expire on September 30. That additional supply is also weighing on prices. On Tuesday, Dalian's most active soyoil contract, January, settled down 3.6 percent at 9,966 yuan ($1,458) a tonne. Palm oil contracts hit their lower trading limit, with the September contract down 4 percent at 8,774 yuan a tonne.
Chinese futures have been pressured by a slide in overseas markets. Palm oil in Kuala Lumpur fell to its lowest level in seven months on Monday, while US soybean futures hit a seven-week low last week.
Meanwhile, Chinese traders and middlemen have scaled back purchases, after earlier building stocks when they expected prices to continue to rise. Tight credit, and expectations that prices will fall further, means they are now buying the bare minimum, traders said. "People bought a lot, expecting prices to tighten up in August or September. But now it's not too bullish because of the expectations of the reserves release," said a trader with a crusher in southern China. "Every time there's a rumour of the release, it goes flop again."