Buyers from China, the world’s second largest importer of palm oil, are rushing to stock up on the refined variant in the last quarter of this year before stricter quality measures set by Beijing take effect on Jan. 1 next year, traders said.

China announced its plans for the grade, used mainly in cooking oil, in July, but official websites gave few details. Traders in China and Southeast Asia said the rules may ask for lower values of stearic acid and peroxide in palm oil cargoes.

Higher-than-usual values of stearic acid in palm oil can cause health problems while peroxide value measures rancidity to tell how long the edible oil can last in storage, traders said.

“We see more buying now because nobody really knows what is going to happen when the rules take effect next year,” said a Singapore-based palm oil trader. “We just have to wait for the first cargo to enter the country and see what happens.”

Refined palm oil, which has higher stearic acid levels than competitors such as soybean oil and rapeseed oil, will be the most affected by the new quality standard, traders in China said.

Chinese buyers have stepped up palm oil imports since October, with imports in November and December set to grow above 700,000 tons each month, traders said. That represents an increase of at least 8.5% over the last two months of 2011, customs data show, when China imported a total of 1,290,000 tons.

Edible oil imports that fail the new standards will have to be refined further before they can be sold. “It would increase costs and you have to find refiners to do it for you,” said an industry analyst in China, who declined to be named because he is not authorized to speak to the media.

China, the world’s second-largest importer of palm oil after India, consumed close to 6 million tons of the commodity in 2011, taken mostly from top producers Indonesia and Malaysia. But palm oil shipments were down 1.7% by September from a year earlier, at 4.1 million tons, customs data showed.

The new rules could give greater importance to crude grades a year after top palm producer Indonesia cut export taxes for refined palm oil in a bid to grow processing capacity. Industry groups expect Indonesian refining capacity to rise 21% to 25 million tons by the end of 2012.

Industry analyst Dorab Mistry, the head of edible oil trading at Indian conglomerate Godrej Industries, said Beijing’s move signaled that China would import more crude palm oil than refined cargoes, in a manner similar to India.

“From Jan. 1, 2013, China is introducing extremely stringent specifications for refined palm olein,” he told an industry conference in China last week. “This probably has something to do with food safety, which is a matter of great importance to the Chinese government.”

The bottom line is that costs will start to rise if refined palm oil is imported and has to be refined again. This scenario could see buyers just bring in crude palm oil cargoes to be refined in China at a cheaper price.

“We may see an initial 5 to 10% decrease in China palm oil imports once the new regulation kicks in,” said one Shanghai-based oils analyst.

“But it will only affect refined palm oil intended for food use. Imports of crude for industrial use should not be affected.”

Palm oil stocks in China are climbing swiftly towards 800,000 tons, the analyst added, as traders buy ahead of the new regulation, although purchases were also driven by food demand for Lunar New Year celebrations in February.

Traders and analysts said China’s port stocks stood at 700,000 to 750,000 tons in August, easing from almost one million tons in May, but higher than the 450,000 to 500,000 tons seen last year.

Source: Reuters Nov 2012

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