July 23, 2008


China stocks up on soy reserves, causing edible oil futures to plunge 


China has bought about 400,000 tonnes of soyoil and up to 1 million tonnes of soy for its reserves, to keep prices down and inflation in check, traders said on Tuesday (July 22, 2008).


Beijing plans to build reserves of 5 million tonnes of soy and 1.5 million tonnes of soyoil.


Expectations that the purchases would be soon followed by sales from the reserves pushed down edible oils futures in China for the past two days.


The purchases have pressured the domestic market because it would displace other supply.


Market watchers expect crude soyoil to be placed quietly with refiners by the end of July, to meet demand from the Olympics and the fall festival season and push down prices, a trader in Shanghai said.


The soy cargoes would arrive in August, September and October, and could also trigger sales of beans from reserves in the third quarter to make room for incoming stock, traders said.


Soyoil futures in Dalian lost ground on Tuesday, after falling by their daily trading limit on Monday. The most active contract, January 2009, settled down at RMB 10,766 (US$1,576) a tonne.


Chinese soyoil futures have lost almost 9 percent this month. Other edible oil futures, palmoil and rapeseed oil, also registered sharp falls on Monday and Tuesday.


Argentina's abolishing of its controversial soy export tax last week and the lowering of crude oil prices further acted to bring down prices of international soy and soyoil futures.


This makes it a good time for the Chinese government to enter the market.


Government purchases to build reserves are contributing to China's expected record soy imports in the year through September, when imports are forecast to reach 35 million tonnes.


China's soyoil imports rose 15 percent in the first half of 2008 while soy imports rose 24 percent.

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