January 31, 2012

China's farm produce futures slightly rebound

Most farm produce futures on Dalian and Zhengzhou commodity exchanges ended a bit higher on Monday (Jan 30), mainly tracking rally of the global commodity market during China's Spring Festival holiday break.

Boosted by moderate rise of CBOT grains during the holiday, the bellwether September soy contract on the Dalian Commodity Exchange gained slightly in the morning session but ended 0.02% lower at RMB4,312/tonne (US$683.42) while the most actively traded soy oil contract for September delivery edged up 0.22% to end at RMB9,046/tonne (US$1,433.73).

As dry weather in South America is being relieved, CBOT soy have slipped back recently and are expected to fluctuate by tight ranges in the short term. Weather conditions in major grain planting regions of South America and Chinese demand will be major factors to affect soy prices on CBOT, analysts say.

The domestic soy and edible oil markets still see ample supply, with soy inventory at ports at a high level. The Ministry of Commerce further raised estimate for China's January soy imports to 5.29 million tonnes from the earlier forecast of 4.57 million tonnes.

Sugar futures on the Zhengzhou Commodity Exchange fell back, with the most actively traded September contract ending 0.28% lower at RMB6,520/tonne (US$1,033.38).

Spot prices in Nanning city of Guangxi Zhuang Autonomous Region, the country's biggest sugar production base, rose RMB20-30/tonne (US$3.17-$4.75) to RMB6,570-6,580/tonne (US$1,041.3-$1,042.89) Monday though trading was quiet after the holiday.

As Zhengzhou sugar was overbought in the earlier period, it is likely to correct in the short term. Meanwhile, seasonal surplus supply in February may also weigh on sugar prices. Analysts tip resistance of the September sugar contract at RMB6,600/tonne (US$1,046.06).

Zhengzhou cotton extended the rebound, with the May contract ending 0.7% higher at RMB21,495/tonne (US$3,406.82). The national cotton price index CCIndex 328, which indicates the average price of standard lint in China, closed at RMB19,298/tonne (US$3,058.61) Monday, up RMB5 (US$0.79) from the previous trading day.

Some analysts predict that textile and garments producing enterprises are likely to start replenishing the depleted stocks after the holiday and this will help shore up cotton prices. However, the import cotton prices are about RMB1,500/tonne (US$237.74) lower than domestic prices. The import pressure, coupled with loose supply/demand relationship on the global market, may prevent domestic cotton prices from persistent rebound.