March 1, 2005

China's domestic lysine prices likely to rise on back of surging soymeal prices
 

An eFeedLink^®  Exclusive Report

As one of the more important protein-based feed ingredient, soymeal price movement is always closely monitored by market participants. Of late, China's domestic soymeal prices have soared on the back of stronger CBOT soymeal prices in the previous week. On Monday, soymeal prices in some regions continue to surge.

As lysine provide some substitute for soymeal, will its price movement in China mirror the soymeal price movement? An analysis of this question is provided below:

1. Normally, soymeal procurement volume will drop when its price rises. This inverse relationship also exists for the demand and supply of lysine. Based on current supply and demand, procurement of soymeal has continued to rise over the previous week's level and some feed millers are still bullish over near-term price prospects. Lysine's procurement volume has also risen, mainly driven by stock replenishment activities of feed millers. As such, the recent rise in soymeal prices has not affected lysine consumption.
   
   
2. Soymeal has always been taken as a proxy for lysine price movement. Many local producers have fixed lysine prices based on soymeal price movement. However, lysine production has expanded rapidly in the past two years and supply has since outstripped demand persistently. Currently, supply and demand relationship is the single most important factor affecting lysine prices. Movement in soymeal prices only has a psychological effect on lysine prices.
   
   
3. Current lysine prices are already near their historic lows. Transacted prices of imported lysine range from RMB12.8-13.3/kg while those of locally produced lysine are hovering between RMB12.0-12.5/kg. Many market participants felt that at current prices, upside potential far exceeds downside risk. Analyst felt that the situation whereby lysine supply exceeds demand will persists but they expect less fluctuation in lysine prices. They added that any surge in soymeal prices might affect sentiments in the lysine market but the rebound in lysine prices will not be very strong.  

In conclusion, the surge in domestic soymeal price movement will have a limited effect on domestic lysine prices although it might give a temporary lift to market sentiments. Analysts expect lysine prices to be locked in a tight range given that supply still outstrips demand.