January 8, 2010

China's Q1 soy prices seen stable despite imports influx

Notwithstanding a possible on-year rise of 20% in soy imports, China's soy prices in the first quarter of 2010 are unlikely to fall much.

Government purchases of local soy at a minimum price and inflation expectations are likely to support prices, though the local market will be oversupplied, analysts said.

The market generally expects China to import more than four million tonnes of soy in each month of the first quarter, up from a total of 10.15 million tonnes in the same quarter last year.

Based on the projected consumption of 7.5 million-8 million tonnes of imported soy in the quarter, there will be an excess supply of around four million tonnes.

However, prices are unlikely to fall much, as the government's policies will keep the cost of local soy at RMB3,850-RMB3,900/tonne (US$564-US$571/tonne), said grain analyst Chen Yanjun.

Cash prices have stayed strong in producing areas because the government is expected to resume sales of the 2009 crop after completing the current round of procurement at prices higher than the purchase price.

Meanwhile, inflation expectations will prompt traders to build inventory, and that will help to absorb the oversupply, analysts said.

On the other hand, analysts said soy prices are likely to come under increasing downward pressure in the second quarter as South American soy and local rapeseed enter the market, while government sales from reserves could commence after purchases of the 2009 crop are completed by end-April.