By
Juliana Dib, Director of Supply and Logistics
The year
2021 was characterized by a period of high volatility in the oil
markets. All
vegetable oils suffered a bullish rally for multiple reasons. Here is a
closer
look at soybean and palm oil trends.
Soybean
Oil
In the case of soybean oil, the requisites of Biofuels mandates and low inventory levels have been the main drivers of price fluctuations. The US government mandates on biofuels have increased the demand for soybean oil. Additionally, low inventory levels have created the perfect environment for strong bullish movements.
At the
beginning of 2021, there was a 75% price increase by the end of June.
Subsequently, concerns about US inflation ran hot and the start of the
American
soybean harvest caused prices to fall to levels of 55 USc/lb and enter a
period
of high volatility, in which the price fluctuated between 55 and 65
USc/lb.
Much of the
year's movements were due to liquidations made by speculators in the
market.
Speculators with the aim of taking advantage of a market with high
demand and
low inventories bought soybean oil in 2020 and pushed prices up. In 2021
they
began a period of liquidation of positions that generated strong
volatility
until the end of September.
Palm oil
In the case
of palm oil, the story has not been very different. Low inventories, low
production due to labour shortages in Malaysia and increased demand from
India
have pushed the market higher.
Inventories
started the year at historical lows and production did not recover over
the
course of the year. The year ended with a level of approximate
inventories of
1,580,000 metric tons and a labour shortage that continues to worry the
market.
Adding to this were bad weather conditions, and supply fundamentals
reflected a
tight market.
Additionally,
the strong increase in exports by Malaysia to India (a key player in the
market) and China favoured upward pressure throughout the
year.
In this
market, prices went from USD 850/ton at the beginning of 2021 to USD
1,200/ton.
Outlook
In the case of palm, prices are expected to remain high during the first quarter of 2022. Due to increased demand from India in Ramadan and a not so good production in Malaysia. In any case, the risk of an increase in production becomes greater as the world economies start to normalize, generating downward pressure for the second quarter of the year?