June 13, 2011

 

 

Soy futures on the Dalian Commodity Exchange closed lower Friday (Jun 10) in thin trade, tracking an overnight decline in CBOT soy which fell on bearish stocks data in a monthly US government report.

 

Customs data showing strong May imports also weighed on sentiment and market participants saw this an indication of increasing supply in the domestic market.

 

The benchmark January contract settled 0.4% lower at RMB4,464 (US$689)/tonne, trading in a narrow range of RMB4,447-4,479 (US$686-691)/tonne. Trade volume was 85,372 lots, the lowest since June 2.

 

July CBOT soy fell 0.6% overnight to close at US$13.9375 a bushel, after the USDA raised its estimate of US soy ending stocks, reflecting a slowdown in the soy export pace.

 

Meanwhile, a sharp increase in China's May soy imports sparked oversupply concerns, as traders appear to have over-estimated the demand for soy and booked more cargoes than needed, analysts said.

 

According to data released earlier in the day by China's Customs Department, soy imports in May rose sharply, up 18% from April and up 4% from May last year, to 4.56 million tonnes.

 

Even as soy crushers continued to incur losses of about RMB200 (US$31)/tonne due to price caps on downstream cooking oil, growing over-capacity in the industry is forcing processors to keep soy imports flowing, experts said.

Those price caps on cooking oil, combined with regular government auctions of the commodity, contributed to edible oil imports in May falling 20% from April and 30% from a year earlier to 390,000 tonnes.

 

Large soy import levels may also be due to a trend of commodity trading companies using soy imports as a means to circumvent government credit controls, analysts said.

 

Trading companies that need cash for projects, typically in real estate development, have been accessing finance by reselling soy imported against letters of credit and using the proceeds as working capital until the payments become due several months later.

 

Strong imports have pushed soy stocks at ports to record high levels of around 6.5 million tonnes, potentially obscuring much lower demand in the actual market.

 

"Higher soy import in May doesn't mean China really needs so much soy, and port inventories are bound to rise further" analysts said.

 

Also weighing on sentiment was the fear that China will likely raise benchmark interest rates after the release of May economic data due June 14, as May inflation is expected to remain high due to high food prices.