March 22, 2007

 

China faces oilseed shortage as grain prices move higher

 

 

China may soon face an oilseed shortage as acreages for oilseeds have been shrinking to be replaced by other grains over the past 2 years, said a senior trader at an international company.

 

The lower acreage is happening at a time when demand for vegetable oils is going up, a trend witnessed by the fact that China is importing more vegetable oils despite a strong increase in soy volumes being crushed.

 

Chinese government policy has favoured growing more grains over the past few years in a bid to secure the nation's food supplies. The rise of the ethanol industry using corn and other grains as a raw material has also served to push up grain prices even more.

 

Chinese exports of rapeseed oil for fuel production in Europe were also adding to the country's shortage

 

To make up for the shortage in vegetable oils, China is importing palm oil, the world's cheapest vegetable oil.

 

Traders sees China's combined imports of palm oil and soyoil climbing by about 15 percent this year.

 

Oils imports could rise 19 percent to about 8.00 million tonnes, including 6 million tonnes of palm oil and 1.8 million tonnes of soyoil, Zhang Liwei, an analyst at the state-owned China National Grain and Oils Information Centre said.

 

China's palm oil imports had already climbed 27.6 percent to 580,000 tonnes in the first two months this year, while soyoil imports rose 19.6 percent to 360,000 tonnes, according to preliminary February customs data.

 

Rapeseed oil imports totalled 53,696 tonnes in the two months, up sharply from just 69 tonnes in the same 2006 period.

 

Rapeseed oil prices hit record highs of above RMB 8,000 yuan (US$1,033) per tonne in January, thanks to a smaller 2006 crop and demand from biodiesel plants.

 

In estimates dismissed by most analysts, CNGOIC said in March that China's 2007 rapeseed crop would drop to 12.35 million tonnes from 12.70 million tonnes last year.

 

Traders and analysts said the figure might not even reach 9 million tonnes. The crop for 2006 saw no more than 10 million tonnes despite an official estimate of 12.7 million tonnes.

 

Although Beijing has not yet introduced biodiesel use in China, companies are jumping in on the action and making biodiesel from rapeseed or palmoil for export or shipping out rapeseed oil for biodiesel production.

 

Chinese rapeseed oil exports rose 34.9 percent to 15,441 tonnes in the first two months of the year after tripling to 44,763 tonnes in 2006.

 

Despite the country's large soy crushing capacity and soy imports, traders said China had booked soyoil of at least 200,000 tonnes for April and May each, as Argentine prices continue to be low and soymeal demand continues to be slack in China.