May 20, 2004

Most Trading Houses Stop Quoting Soybean Prices To China Market

Most international trading houses have stopped providing price quotes for soybeans delivered to the Chinese market for at least three days now, citing intense negotiations with Chinese soy crushers over previously booked cargoes, traders in the region said Wednesday.
 
Following a purported "crisis meeting" held Sunday by China's 16 largest soy crushers, Chinese soy crushers are in talks with trading houses on possibly delaying delivery of cargoes or selling cargoes back to suppliers at a fee, traders said.
 
Many Chinese soy crushers can no longer afford the cargoes and would rather sell them back with a penalty fee. Their deteriorating financial situation is worsened by a nationwide credit crunch aimed at cooling down the country's overheated economy.
 
The soy crushers met in Beijing to address the issue of expensive soybean imports by coordinating the pace of future imports and sharing stocks among themselves. They agreed to reduce previously booked "arrivals in the second quarter as much as possible", according to the meeting minutes.
 
But the talks between soy crushers and trade houses became more contentious, traders said, because Chinese soy crushers asked for, among other things, the cargoes to be re-priced based on premiums over soybean futures contracts on China's Dalian Commodities Exchange instead of over Chicago Board of Trade soybean contracts.
 
Soybean cargoes sold to China are mostly quoted at a premium over a particular CBOT contract. Premiums thus take into consideration both the CBOT price and international freight rates.
 
Soybean futures on CBOT have doubled in less than a year, mostly due to surging Chinese demand compounded by a rising U.S. dollar. At the same time, freight rates doubled.
 
Chinese soy crushers have since been plagued by a dwindling soy crushing margin and an excessive crushing capacity.
 
Chinese crushers argued that the country represents over 30% of international soybean trade while having no pricing power over soybeans.
 
Stuck in a quagmire of expensive soybean imports and soft demand from end users such as feed buyers, Chinese soy crushers united to voice their dissatisfaction over the pricing issue, traders said.
 
But China-based traders who represent international trading houses said the soy crushers' requests are beyond their authority.
 
"This is impossible for us to decide. We are waiting to hear back from our headquarters," a Beijing-based soybean trader said.
 
Meanwhile, trading houses promptly halted price quotes of soybeans delivered to China until "things become clear", said the Beijing-based trader.
 
At least one international trading house flew its Singapore-based soybean trader and China-region director to mainland China this week to participate in the negotiations.
 
China is the world's largest soybean importer, with imports totaling 20.74 million metric tons in 2003.