March 21, 2008

 

Defaults by Chinese soy buyers may rise as prices slump

 

 

News that a Chinese buyer had defaulted on the purchase of a US soy cargo has sparked concerns that more may occur as international prices of oilseeds and vegetable oils slide from record highs early this month.

 

Traders said the default involved a buyer in the northern province of Shandong, but no further details were given, except that it was a default on an expensive soy by a small player according to a senior trader at an international house.

 

There also had been defaults of one or two cargoes of soyoil from Argentina, and a few on palm oil, they said.

 

The trader added there had been some defaults on soyoil and possibly as much as 150,000-200,000 tonnes of palm oil.

 

During the sharp recent rally in futures, Chinese buyers bought soybeans, soyoil and palmoil aggressively, encouraged by strong cash vegetable oil prices at home after snow storms was said to have caused severe damage to the country's rapeseed crop.

 

The traders estimated China was buying about 300,000 tonnes of soyoil per month, while booking 500,000 tonnes of palm oil for shipment of up to June or July.

 

Since the rally, soyoil prices from Argentina have cooled to about US$1,300 a tonne, including costs and freight, from close to US$1,500 two weeks ago.

 

A trader in Shanghai said almost all suppliers have received requests for cancellation and more would be coming if prices continue to go down.

 

Back home, thanks to Beijing's intervention, cash vegetable oils prices in China have also lost nearly 20 percent from records two weeks ago.

 

Last week Beijing released 250,000 tonnes of soyoil from its reserves.

 

However, the possibility of mass defaults, by Chinese buyers is low, according to analysts.

 

The last time defaults occurred was in 2004, when Chinese buyers of South American oilseeds defaulted and suppliers lost millions.