August 5, 2009

A global soy price rally has pushed Chinese import costs higher than the minimum price set for selling off some of the government's state reserves, although expectations for Wednesday's (Aug 5) auction remain low.

 

Prices of imported soy are quoted around RMB4,000 (US$586) per tonne at Tianjin and Dalian ports, after a 14-percent increase in the benchmark Chicago Board of Trade futures.

 

With the Chinese government setting the auction prices for its state soy reserves at RMB3,750, it has been suggested that purchasers should be more eager than in the previous two rounds of auctions, both of which failed to draw any bidders.

 

However, the situation may not improve significantly as the market participants still have ample inventories, according to a trading manager with a Singapore-based firm which sells soy to China.

 

China's first two attempts to sell soy failed as prices of imported soy, mainly from the US and Latin America, were about RMB200 lower that the government's offer price.

 

Nonetheless, China will conduct a third round of soy auction on Wednesday, offering a total of 500,000 tonnes.

 

Meanwhile, traders said the lower quality of domestic soy was also an issue in influencing the state soy auctions.

 

Cao Yanhui, an analyst with Guoxin Futures in Dalian, suggested that the price difference between imported and domestic soy should be above RMB500 per tonne as imported soy have higher output of soyoil.

 

Traders said processors yield RMB120-150 worth of more soyoil when they process imported soy.

 

Currently, China is estimated to have about six million tonnes of soy in state reserves following a massive stockpiling campaign and stocks at the ports are seen around four million tonnes.

 

China, the world's largest soy importer, has been purchasing record quantities from the international market, which drove the CBOT contract to a nine-month high in June. However, prices have eased as Beijing begins to sell down stocks ahead of the next harvest, a measure expected to lower the import demand.

 

China's soy imports increased more than 28 percent to 22.09 million tonnes in the first half of the year.

 

US$1=RMB6.835 (Aug 5)