February 3, 2011

 

China to expedite soy imports after Lunar New Year

 

 

China is likely to speed up its soy imports following the Lunar New Year and slow its purchases of vegetable oil as floods cut off palm oil supply in Malaysia and halt Argentine soyoil exports.

 

The world's largest food shopper needs to restock to process cooking oil after the holiday, which starts on Wednesday (Feb 3) for 10 days, while reining in food prices that have been driven up by a series of weather events since last summer.

 

On top of the shopping list: US soy cargoes and an ample, incoming Brazilian soy crop, which can potentially cut edible oil imports by 10% to about 6.1 million tonnes for the marketing year to September 2011, according to industry estimates.

 

That would represent a second straight year of declining imports and would weigh on US soyoil and Malaysian palm oil futures that have been pricing in weather premiums and higher biofuel prices as crude oil hovers near US$100 a barrel.

 

"The situation is very bullish for vegetable oils and China will look to buy a more significant amount of soybeans this year from Brazil and the US to escape paying a lot more for palm oil and soyoil," said Abah Ofon, a Singapore-based analyst with Standard Chartered Bank.

 

When China re-opens after the holidays, it could be a whole new ball game for the country with more than 1.3 billion people to feed and headline inflation likely to hit a 30-month high in January.

 

A week-old port strike over wages in top soyoil supplier Argentina's export hub has stopped 45 ships from loading grains and prevented soy crushers from going to work, lifting the soy complex to a 28-month high.

 

Low stock-to-use ratios and soaring edible oil prices may force big Asian food buyers to shift some of their rice and soy stockpiling efforts to include palm oil and soyoil as they try to limit public unhappiness over rising food costs.

 

Top trader Cargill has seen more buying and stockpiling of oilseeds in the Maghreb region alongside the Egypt unrest triggered by complaints of poverty and repression under President Hosni Mubarak.

 

South American soy for May shipment gives a crushing profit of RMB81 (US$12.35) per tonne but soyoil incurs a RMB320 (US$48.77) per tonne loss to hedge on Dalian commodity exchange, the China National Grain and Oils Information Centre (CNGOIC) said recently. Losses from palm oil stand at roughly RMB589 (US$89.77).

 

"There is no price advantage for soyoil. We expect lower imports in the year 2010/2011, or 300,000 tonnes lower," said one analyst with CNGOIC.

 

"The demand will have to be met by processing more soybeans, where we expect an increase of four million tonnes in the year, which will be equivalent to 800,000 tonnes of soyoil and the shortage in imports can be easily covered," the analyst said.