Viral impact

VOL 37 NO 3 MARCH/ APRIL 2020 OILS & FATS INTERNATIONAL

EDITORIAL: Editor: Serena Lim serenalim@quartzltd.com +44 (0)1737 855066

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Since the novel coronavirus (Covid-19) fi rst emerged in China in December, its spread and impact on all aspects of our lives have grown dramati cally.

Lock-downs in citi es, the grounding of fl ights, overwhelmed health systems, panic buying in supermarkets, cancelled events, restaurants and businesses having to shut down and, of course, the actual toll on health.

As of 18 March, Worldometers reported 203,612 Covid-19 cases globally and 8,229 deaths, an exponenti al rise from just 580 cases and 17 deaths on 22 January. The actual number of cases will be higher as some countries, like the UK and USA, are barely testi ng for the virus.

No one knows when the pandemic will peak – some scienti sts suggest transmission rates will drop as we head into the Northern Hemisphere spring and summer but may rise again in winter 2020-21.

And the more measures countries take to fl att en the infecti on curve, the more they are steepening their recession curve.

The oils and fats market has seen prices plummet due to fears of a fall in demand (see p4).

“The closest parallel to the current epidemic is the SARS outbreak 17 years ago, which had a much more limited geographical spread,” says industry expert James Fry, chairman of LMC Internati onal. “Inevitably, there were disti nct repercussions for world trade in oils. However, the surprise back then was that the slowdown in oils imports into China and in the exports of palm oil from South East Asia to the whole of Asia occurred just aft er the epidemic had stopped infecti ng more people. Presumably shipments booked earlier conti nued to fl ow, but port stocks in importi ng countries accumulated, and imports were then scaled back aft erwards.

“Something similar seems to be happening now with Covid-19. Exports have, generally speaking, conti nued to fl ow but stocks at import ports have increased, which means that we can expect a slowdown in trade volumes very soon, and conti nue for some ti me to come.”

Godrej Internati onal director Dorab Mistry says the vegetable oil market has been hit by a triple whammy of factors rarely seen before. “In the second half of 2019, the Indian economy slowed down and aff ected Indian buying, along with other major markets like Pakistan and North Africa. Then comes Covid-19 which hits Chinese buying and slows down every other market. And fi nally comes the Saudi-Russian feud which depresses crude oil prices.”

Without the Indonesian B30 biodiesel blending mandate, crude palm oil prices would be in the US$400-500 FOB range, he says.

“Looking forward, the Covid-19 impact on demand is a developing situati on. The stock market meltdown, the weakness of emerging market currencies and the generally anaemic economies of major markets give us a deadly cocktail.”

Mistry says world demand for edible oils for food this year may grow by only 1.5M tonnes against a normal growth of 3M tonnes.