December 05, 2003

 

 

China Set To Suspend Corn Exports For At Least Two Months From January
 

China, the world's second-biggest corn exporter this year, looked set on Thursday to suspend shipping the grain for at least two months from January, threatening sales contracts sealed for early next year.

 

Traders said while foreign buyers were trying to pull forward the shipment to December from the first quarter, it was difficult to load all vessels in time due to higher domestic prices, railway and port congestions ahead of the Lunar New Year.

 

They said it was still unclear how many cargoes were affected. But it could total as much as 500,000 tons as logistical constraints made it almost impossible for China to ship out more than 1.2 million tons in a month.

 

"It is highly likely that they will stop exports," said a senior trader at an international house.

 

Another trader in Shanghai agreed, adding: "January and February shipment cannot take place. So people are trying to push them into December. That is a problem, of course, because so many corn cargoes have to be shipped out in December."

 

Some buyers are already wrangling with delays in loading cargoes, particularly those traded at large discounts to U.S. corn prices, they said.

 

In addition to usual railway congestions ahead of the Lunar New Year festival next month, corn exports were hit by Beijing's efforts to transport more domestic soybeans from the producing northeast to the consuming south, the traders added.

 

Traders said there was a sea change in Chinese practice. Chinese suppliers unilaterally notified the buyers that they would automatically cancel the sales if they failed to send vessels as stated in the contracts.

 

Now Chinese buyers are rejecting the nomination of vessels by the buyer for January loading, they said.

 

"This year, it is different," said another senior trader based in Beijing. "In the past the buyers and the sellers had a tacit agreement to postpone shipment into the new year."

 

Until last year, such practice had allowed undisrupted exports of subsidised Chinese corn, though Beijing did not decide until February or March on the fate of the financial support in the new year.

 

The traders said China might resume corn exports after the Lunar New Year in late January, though signs were mounting that Beijing would either cut subsidies or waive them altogether to comply with its commitment to World Trade Organisation (WTO).

 

"In March or April, it may continue," the Shanghai trader said. "But pricing will be completely different. It will be a completely different story."

 

With freight rates hovering at all-time highs, the traders said Chinese corn exports might remain competitive to some Asia destinations, such as South Korea, against its rivals such as U.S or Argentine corn, even without subsidies.

 

Yet they agreed it would no longer make it outside Asia, such as Iran that has emerged as the number three destination of Chinese corn this year, with imports totalling 1.55 million tons in the first 10 months.

 

"For (South) Korea, it may still calculate. For other places it may be too expensive against U.S. or Argentine corn," the Shanghai trader said.