May 25, 2012

 

Chinese buyer cancels four soy consignments

 

 

A private Chinese trading house has cancelled four soy loads from Brazil due to low domestic crushing margins.

 

However, the cancellations were not widespread and China was still shopping for third-quarter delivery supplies, according to traders.

 

Falling domestic crush margins has squeezed some higher-cost crushers and them to cancel or defer some shipments, but many other Chinese crushers are still looking to make up for their supply shortfall for August and September, after a drought cut shipments from South America, traders and crushers said.

 

Market participants stressed that the cancellations, known as "wash out" in trade lingo, were based on mutual agreement and was not a default, whereby a buyer would refuse to take deliveries and forsake the deposit.

 

"We had booked too many soybean cargoes for delivery and right now crushing margins are not very good," Shao Guorui, a trading manager with Shandong Sunrise Group Co. Ltd which cancelled the shipment, said. The firm, based in the northern province of Shandong, also has its own crusher.

 

Shao added that the supplier, a Japanese trading house, had accepted the cancellation of the cargoes, for July shipment, as it will be able to sell the soy  to others for a better price as current premiums to China have jumped to more than US$2.10 per bushel from US$1.60 when he originally booked the cargoes.

 

Traders said the supplier had found buyers for the four cargoes, totalling about 240,000 tonnes, probably in China.

 

US spot-month soy hit a two-month low and dropped 1.4% on Wednesday (May 23) on risk aversion triggered by a deepening euro zone debt crisis, with talk of Chinese processors cancelling or postponing purchases adding pressure.

 

But traders in China said investors may have over-reacted.

 

A trader with an international trading house said China had so far only purchased less than half of its monthly imports of 4-5 million tonnes for September shipment.

 

"The buyers are still Chinese, and China's overall imports are also expected to rise this year," said another trader.

 

Commodities markets have been gripped by fears of Chinese defaults following a raft of deferrals and defaults on coal and iron ore deliveries on the back of falling prices.

 

But analysts said China's demand for agricultural products remain very resilient as overseas prices was cheaper than domestic supplies.

 

The price of soymeal, a major by-product of soy, have fallen amid expectations of weaker demand from livestock breeders. This has in turn put a squeeze on Chinese crushers, making some lose about RMB100 (US$16) on every tonne of soy they process.

 

Some of them have also deferred their May-June arrival shipments to the fourth quarter, traders said.

 

China is expected to import 5.8 million tonnes of the oilseed in May and again the same volume in June, up nearly 20% from April's 4.88 million tonnes.

 

Beijing is also selling its state reserves to the market to try to draw down its old state stocks to take advantage of expensive imports.

 

On Thursday, the government sold 188,410 tonnes, out of an offer of 605,356 tonnes of soy reserves at a price of RMB3,870-3,952 (US$610-$620) per tonne, a majority of the sales went to crushers in the inland province in the northeast, which process only domestic soy.