Japan’s Palm Oil Imports Seen at Record After Soybeans Rally

(BusinessWeek) – A rally in soybeans is spurring Japan, Asia’s second-largest buyer, to seek record imports of palm oil, which is displacing soybean oil in margarine to potato chips.

Imports of the tropical oil may expand to 600,000 metric tons from last year’s 557,937 tons, said Yoshinori Komura, managing director of the Japan Oilseed Processors Association. Soybean crushing may decline more than 3 percent to 2 million tons from 2011, he said in an interview in Tokyo yesterday.

Food producers are facing difficulties in passing on higher raw-material costs to consumers as the world’s third-biggest economy is mired in deflation. Soybean’s 14 percent rally this year, coupled with a strong yen against the dollar, boosted demand for palm oil as soybean oil makers including Nisshin Oillio Group Ltd. (2602) and J-Oil Mills Inc. (2613) proposed raising wholesale prices in April, the first increase in a year.

“Palm oil consumption in Japan is expanding while demand for vegetable oils is declining,” said Masayuki Kumagai, head of the oil and fat division at the Ministry of Agriculture, Forestry and Fisheries. “Palm oil is increasingly used as a substitute for soy oil or rapeseed oil.”

Malaysia Exports

Record purchases by Japan will boost palm oil exports from Malaysia, the second-biggest producer, which supplied 95 percent of imports last year. Reduced soybean imports will mean lost sales for the U.S., the largest shipper, which supplied 67 percent of Japan’s purchases in 2011.

Soybean futures in Chicago reached $15.125 a bushel on May 2, the highest level since July 2008, as drought damaged crops in Brazil and Argentina, the second- and third-biggest exporters. Soybeans traded at $13.7275 a bushel at 1:06 p.m. in Tokyo.

China, the largest importer, increased purchases from the U.S. as supply from South America declined. Chinese imports are forecast to expand 8.9 percent to 61 million tons in the year starting October, representing more than 60 percent of global shipments, according to the U.S. Department of Agriculture.

Palm oil futures in Malaysia have lost 3.8 percent this year, while the Standard & Poor’s GSCI gauge of 24 raw materials has decreased 3.1 percent. Palm oil fell 1.7 percent to 3,057 ringgit ($974) a ton on the Malaysia Derivatives Exchange.

“Palm oil consumption in margarine production is rising as manufacturers are looking for cheaper raw-materials,” said Tsutomu Ueda, executive director for Japan Margarine, Shortening and Lard Industries Association.

Margarine, Soy Oil

Palm oil consumption in Japan’s margarine production increased 1.2 percent to 52,572 tons in 2010, while soy oil use dropped 12 percent to 10,643 tons, association data show.

Japan’s production of soy oil declined 14 percent to 401,455 tons last year, while imports of palm and palm-kernel oils increased 3.5 percent to 649,604 tons, according to the agriculture ministry.

Japan’s soy oil output also decreased on weaker demand for local soymeal, said Kazufumi Aramoto, secretary general for the Japan Oil & Fat Importers & Exporters Association.

Soybeans are crushed to produce oil and soybean meal, a source of protein for livestock. Demand for imported soymeal expanded as the yen’s rally to a postwar record against the dollar reduced purchasing costs for Japanese feed mills.

Japanese imports of soymeal climbed to a record 2.20 million tons last year from 2.19 million in 2010, according to the agriculture ministry. India was the largest supplier with 1.3 million tons, followed by the U.S. with 376,556 tons.

“I can’t see any factors that will revitalize soybean crushing in the near term,” Aramoto said. “Japanese manufacturers may have tough times ahead as their plants are running well below capacity, threatening earnings.”

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net.

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net