May 28, 2004

China Crushers Suffer Heavy Losses As Soymeal Prices Fall

China's soybean processors have suffered heavier losses in the past week, largely due to weaker soymeal prices, traders in China said Thursday.
 
For processing one metric ton of imported soybeans, the crushers in China would lose more than RMB500 ($1=RMB8.277), compared with losses of RMB250-450 last week, traders said.
 
While soybean prices in international markets have fallen sharply in past months, most crushers booked their soybean purchases at prices over $10.00 per bushel when Chicago Board of Trade soybean futures soared past 15-year highs two months ago. The landing costs of most imported soybean cargoes that arrived in the past month were well above RMB4,000 a ton, traders said.
 
In some isolated cases, crush margins were a negative RMB600 a ton or lower, if the soybean buyers booked the cargoes at higher prices, local traders said.
 
"No one knows when the bleeding will stop since the crushers are trapped between the high raw materials cost and weak demand for their products," a trader from China National Cereals Oils and Foodstuff Import & Export Co. Ltd. said.
 
Some crushers have given up hopes for any near-term recovery soybean product prices have weakened further this week due to crushers lowering prices to attract demand, traders said. However, the end users in livestock and feedstuff industry stayed sidelined this week, waiting for lower prices before making any significant coverage.
 
"It is a disaster, a pure disaster for the crushing industry," said an official from a grain and oilseeds trading company in Beijing Thursday. There were more inquiries for soymeal in the past week, and the trading volume in spot markets showed signs of improvement, the official added.
 
But the demand recovery so far has been too weak to change the market sentiment and reverse the falling trend of soymeal and soyoil markets. Most soymeal prices fell under the psychologically significant level of RMB3,000 a ton this week, traders in Jiangsu and Shanghai said Thursday. The prices of second grade soyoil also fell to CNY6,700 a ton in Jiangsu, compared with CNY6,850 a ton one week ago and CNY7,050 a ton one month ago.
 
SOYBEAN IMPORTS TO SLOW
 
Some traders argued the recent trade dispute regarding Brazilian soybean cargoes tainted with fungicide could slow down the arrivals of imported soybeans and buoy the market sentiments. Chinese quarantine authorities have suspended six foreign suppliers from exporting Brazilian soybeans to China after finding fungicide in the Brazilian soybean cargoes.
 
But other traders are doubtful if such tactics could change the situation. "It could bring temporary relief to the domestic markets by reducing the soybean imports in the second quarter if much fewer Brazilian soybean cargoes are allowed to unload," a market analyst from a local brokerage house in Beijing said Thursday.
 
But with the visit of Brazilian President Luiz Inacio Lula da Silva in China this week, it is unlikely that the soybean trade with Brazil would be affected for long, traders and analysts said.
 
"The soymeal markets could be near the bottom if the soybean imports in the coming two months turn out sharply lower than earlier expectations. But until more evidence about reduced supply and higher demand surfaces, the soymeal markets could stay weak for some time," the analyst in Beijing said.
 
For the month of May, China is estimated to receive 30 Panamax-sized cargoes of imported soybeans. In June, the soybean imports could reach 40 cargoes or more, assuming no more cargoes will be rejected on sanitary concerns, traders tracking shipments of South American soybeans said.