Structural difference in rapeseed and palm production prospects is continuing to expand spreads between their vegetable oil derivatives. Asian palm oil traders are bracing for Malaysia to upgrade its palm oil stock data when fresh numbers are published on Monday, following a slowdown in July overseas sales just as the seasonal production cycle peaks. Indonesian palm oil output for the 2014/2015 marketing year is pegged at 33mn t, up 8% YoY, according to FAS. Conversations with industry sources have shown Indonesian producers sitting on “excessive” stocks, FAS added, lifting its end 2014/2015 stock prediction to 3.22mn t, nearly double the official USDA carryout stock estimate. European rapeseed output meanwhile is expected to finish the harvest at just over 21mn t, down 11% YoY.
Reflecting the divergent fortunes of Asian and European producers, Asian palm oil prices have slumped to their steepest discount to rapeseed oil in nearly 2 years. Spot dollar-denominated Asian palm oil is approaching a $250/t discount to European rapeseed oil. Spreads are tighter along the forward curve through into the first half of next year, even though this time line encompasses peak season for European consumption of rapeseed oil for biodiesel manufacture, one of the main demand sinks for European rapeseed oil. Even so, rapeseed/palm oil spreads remain comfortably above $200/t deep into the first half of next year.
In stark contrast, prompt intergrade spreads in the European biodiesel market remain tight between palm and rapeseed-based biodiesel, with RME/PME spot spreads steady at $20/t. The European biodiesel market better reflects rape/palm oil spreads further forward, with fourth quarter 2015 and first quarter 2016 spreads both at $80/t. This still leaves nearly $150/t in simple feedstock margin relative to the RME/PME spread, which will be particularly attractive for HVO producers who are able to ignore palm’s otherwise inferior cold properties.