February 13, 2004

 

 

Bird Flu To Hit China's Soybean Crushers Another 3-4 Months

 

The bird flu outbreaks in China have seriously hit the country's soybean crushing industry. Big industry players reported losses and had to cut down operations, while small companies were even forced to shut down their businesses.

 

China has more than 100 facilities each capable of crushing above 1,000 tonnes per day. But now, less than half are operating. Tiny operations abound, especially in key soy-growing areas in the north.

 

"Small crushers have got to go. Some have already been shut, while others have been swallowed by bigger players," said Li Xuansheng, EastOcean deputy general manager.

 

EastOcean Oils and Grains, which operates one of the world's biggest and most modern crushing plants, swallowed a tenth of the country's soybean imports of about 21 million tonnes in 2003 and reaped almost $1 billion.

 

"We'll see consolidation taking place in the next three to five years."

 

In just over a decade, China's share of world soybean crushing capacity has increased to 15.5 percent from 3.7 percent, surpassing key producers such as Europe and Argentina, according to a Canadian government report published in January.

 

"The industry has been suffering from excess capacity for years," said an analyst with a state-backed grains think tank, the National Oils and Grains Information Centre.

 

"There are many small players with daily capacities of several hundred tonnes, especially in key soy growing areas such as China's north."

 

Smaller players have already been squeezed out of business, but that doesn't mean that they are gone for good.

 

"They can open and shut easily. Once the market recovers and there's money to be made, they restart their engines again," the analyst said.

 

So far, more than a dozen of China's 31 provinces have confirmed or suspected cases of bird flu, which has led to the culling of millions of birds and could spark a 15 percent slide in soymeal demand to around 16 million tonnes, Li said.

 

Even a world-class crusher such as EastOcean -- capable of turning a whopping 12,000 tonnes of soybeans into meal and oil in a single day -- has not been spared.

 

EastOcean, whose profits grew by a third to 7.07 billion yuan ($854 million) in 2003,is owned by top U.S. foods processor Archer Daniels Midland Co, Singapore's Wilmar Holdings Pte Ltd and Chinese grain giant COFCO. But it has been bleeding red since the start of 2004, prompting it to slash operations to half of capacity.

 

EastOcean, based in the eastern coastal city of Zhangjiagang in Jiangsu province, was losing about 150 yuan ($18) for crushing a tonne of beans, Li said.

 

Worse, Li said activity would come to a virtual halt in March at its soybean crushing facility.

 

Heaps of soybeans piling up at its docks will most probably land up in silos instead of crushing machines, which crack the yellow oilseed and squeeze out the oil, leaving the residue to be toasted and ground to meal.

 

Li reels off a list of reasons for the sudden change in fortunes, including overcapacity, bird flu, expensive soybeans due to record-high freight rates and Chicago futures hovering near seven-year peaks.

 

"Soybean prices are so high and I just can't figure out the market these days," Li said. "Bird flu is going to hit crushers for another three to four months."