SHANGHAI: China's canola oil futures prices rose to its highest in nearly three-and-a-half years on Monday, after previously charting gains for 10 out of 11 weeks, as lower imports due to tensions with Canada spurred supply concerns and higher trading interest.
Canola oil prices on the Zhengzhou Commodity Exchange surged to 7,957 yuan ($1,137.53) per tonne on Monday, its strongest since February 2017. Open interest for the contract also hit an over one-year top.
"Investors feel this is a 'hot oil'," a Shanghai-based trader said. "Funds are driving the (price) rise, open interest positions will also follow."
Canada and China have been locked in a trade and political dispute since Meng Wanzhou, chief financial officer of Chinese telecom giant Huawei Technologies Co Ltd, was arrested in Vancouver in December 2018 on a US extradition request. A Canadian court's ruling in May might pave the way for Meng's extradition.
"Supply-side risks have increased. Due to the May hearing, there are not many shipments for June and July," said Haitong Futures analyst Kong Lingqi, adding that Canadian supplies dominated most of China's canola imports.
Domestic inventories of canola oil at coastal plants as of early July are also down 70% from July last year, she said.
"Sino-Canadian relations may not ease for a while. The shortage of rapeseed oil supply will be difficult to change in the short term."
Weaker demand from China's aquaculture industry for canola meal, made from crushing canola seed and producing oil, has also boosted canola oil prices, said Darin Friedrichs, senior analyst at INTL FCStone, as the meal is used as fish feed.
"Demand for rapeseed meal has been weak because of lower demand from aquaculture, in part due to the recent flooding. That is supportive for oil," he said, as recent floods across southern China impact aquaculture and other agricultural industries.
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