May 19, 2004

 

 

Soybeans Stranded In Chinese Harbors

 

Cargoes of South American soybeans are stranded at Chinese ports, as an evolving financial crisis grips the companies responsible for making China the world's biggest soybean importer, traders and industry experts said on Monday.

 

At least two cargoes of soybeans are marooned in China's Dalian port in the northeast, and in ports in the southern province of Guangdong after banks refused to extend letters of credit to soybean crushers to buy them, analysts said.

 

"There will be several more like this," one industry executive said. "The banks do not trust the crushers because they know they are operating at a loss. Every ton of bean they crush they lose at least RMB280."

 

China's 29m-ton-a-year crushing industry, which processes beans into oil and fodder, dominates demand. But signs are growing that China will fall significantly short of importing the 2.5m tons a month average it managed last year in the busy May-to-September period.

 

Overall China is expected to import some 19m to 19.5m tons of soybeans this year, down from the 20.74m last year, traders estimated.

 

These signs have hit the international soybean price in recent days but traders said the bad news might have only just begun. Ma Minwang, a director at Heilongjiang Tianqi Futures, said the crushers have built up huge inventories bought at the top of the market in February and March.

 

"There are about 2m tons of soybeans stored in the ports, not including the inventories at crushers' factories," said Mr Ma. "I heard of crushers cancelling orders for foreign beans but only a few would actually break contracts because the penalty for doing so is so severe."

 

With the sharp decline in demand by crushers, and the announcement last week by a branch of the state administration of quality and supervision that China was banning imports from four Brazilian trading houses after finding harmful fungicides and pesticides in Brazilian cargo, some analysts saw a connection between the two events.

 

Another event could further depress world soybean prices - some 16 crushing companies, representing about half China's total capacity, met in Beijing over the weekend and decided to delay, reduce and even break contracts, traders said.

 

Breaking a contract incurs huge penalties - about around $1m for a Panamax-sized vessel (one that can sail the Panama Canal) - but several Chinese crushers have little choice. They bought cargoes to arrive in May and June at near record prices, believing demand from fowl and livestock farmers would come back strongly this month from depressed levels caused by a "bird flu" scare in March and April.

 

That demand has largely failed to materialize, and compounding matters, Beijing has since late April embarked upon a concerted campaign to slow economic growth.