October 29, 2010

 

China cuts edible oil imports on high cost

China's shift to cheaper soy from pricier vegetable oils will be a big step forward in reining in a growing agricultural trade deficit that hit US$11.3 billion in the first half of 2010, almost double the same period last year.

 

Taxes on imports and massive expansion of soy crushing facilities also reflect that goal, according to official data.

 

Customs impose 9% duties on palm oil and soyoil but just 3% for soy. In the past, importers were willing to brave that mechanism when soy supplies tightened and cooking oil demand surged.

 

"This year, more importers are going to be cognisant of the fact that they will get more discounts by adhering to the tax structure," said a trader with a Singaporean trading house that ships soy products to China.

 

"The higher soyoil and palm oil prices are a little unattractive with inflation on the rise," the trader said, referring to last month's annual inflation that rose to a 23-month high at 3.6%.

 

China's lower participation in edible oil markets may pose a setback for overseas processing sectors, but the blistering rise in soy imports will slowly crank up its 100 million tonne crushing capacity, of which half lies idle.

 

It mostly has to do with the promise of higher margins. China National Grain and Oils Information Centre (CNGOIC) said Chinese traders were buying South American crops forward with crushing profit of RMB302 (US$45) per tonne - the highest this year, and traders expect it to rise further.

 

"The margins will go beyond RMB500 (US$75) and shrink a little at the end of this year but it will be good margins for some time because domestic soyoil and soymeal prices are high," an analyst said.

 

Traders say China may cut vegetable oil purchases by at least 700,000 tonnes of mainly refined palm olein from Southeast Asia, taking the edge off Malaysian palm oil futures that hit two month highs this week on the falling dollar.

 

Soaring US soy futures have lifted the soyoil market to two year highs this week on strong Chinese demand but although China's vegetable oil purchases may slow in the future, higher South American biofuel mandates will prop up prices.

 

"Soyoil will widen its premium to palm oil to US$100 after trading in tandem in August," said a regional vegetable oil trader in Malaysia.