Inflationary pressures, the continued Russia-Ukraine conflict, a fluid Indonesia export duty structure for palm, and pronounced effects of China lockdowns have added to the volatility in Asia’s oleochemicals market.
We have seen bearish sentiments across the Asia market, driven by the Chinese economy’s slower growth and current geopolitical tensions within Asia. These developments have had spill-over effects on other markets. The slowdown has triggered a decreased demand across Asia in industries such as cosmetics and construction. The world is closely watching the status of the regional tensions to try to gauge any potential continued effects on the economy and supply/demand dynamics.
In regard to palm, we are in the midst of harvest season. Overall, there is confidence in continued progress in palm oil production in the months to follow. Stocks are expected to build in both Malaysia and Indonesia. However, any changes to Indonesia’s duty and levy structures (currently no levy until the end of October), as well as soybean yields in the U.S., have the potential to impact pricing. Therefore, these factors both should be monitored closely. Barring any major typhoon disruptions or damage, we can also expect solid coconut oil production for the remaining months in the 2022 calendar year.
China’s zero-COVID strategy is expected to continue; as major cities were placed on lockdown in recent months, China’s GDP declined by 2.6% in the second quarter of 2022. This is the slowest growth the nation had seen since the pandemic began. This reduced growth affected production and put more pressure on logistics, which had already seen their fair share of challenges. In Q3 of 2022, some lockdowns occurred, but they were not as widespread as they were in Q2. However, any climb in the severity of COVID-19 cases could result in larger lockdowns.
Additionally, the world is closely monitoring possible changes that may arise from the 20th National Congress of the Chinese Communist Party, scheduled to open on October 16. However, there is cautious optimism that China’s consumption will see a modest increase with Singles Day (November 11) and the restocking that normally occurs during the upcoming festive seasons: Diwali, Christmas and the Lunar New Year.
Regardless of how the Asia market may move, P&G Chemicals has strong confidence in our ability to maintain our long-term focus on producing high-quality oleochemical products safely, meeting supply commitments and creating long-term joint value with our customers. We will continue to do our best to provide customers with reliable, quality products, as we have done in Asia for nearly 30 years and globally for more than 180 years.