September 27, 2012

 

China soy crushers face low operating rate on soy shortage

 

 

The operating rate for China's major soy crushing firms is lower on-year and is expected to decline further with lesser soy imports and depleting stocks.

By September 18, the country's soy crushing mills in main producing areas had seen an average operating rate at around 50%, gaining slightly from a month earlier but far lower than the 60% in the same period of last year.

 

Currently, domestic crushing mills which use feedstock of homegrown soy are suffering shortage of raw materials as farmers tend to sell their soy to the state stockpiler which has offered competitive prices.

 

A survey report released by Galaxy Futures showed that the leading domestic soy processing company Heilongjiang Jiusan Oil and Fat Co. had an operating rate of about 50%. Three of its processing mills in Heilongjiang, the biggest soybean production base in China, have suspended production, but all of its offshore plants which use imported soybeans as raw materials are operating in full swing.

 

Liu Baolin, general manager of Hagongda Oil Plant, said that the company had been in full production before July when the purchase prices of soy was relatively low. However, since July, soy prices have increased persistently tracking global rises. "If the company purchases soy at current prices, it will incur losses," Liu noted.

 

Song Shengbin, board chairman of Longjiangfu Oil Company, estimated that the company's operating rate and profitability would not improve much given the mounting raw materials cost pushed up by persistent rise in the government-set floor purchase prices.

 

Meanwhile, the expected slump of soy output this year will further tighten supply of homegrown soy and boost soy prices to even higher levels.

 

Wang Xiaoyu, vice general secretary of the Heilongjiang Soybean Association, predicted that Heilongjiang's soy output will slump about 30% this year, and purchase prices of new soy are expected to reach up to CNY4,600 (US$729) per tonne after they come into the market during late October.

 

In the meantime, the fourth quarter is usually the peak season for cooking oil and soy meal consumption, and robust demand and decreasing supply will probably provide support for soy prices.

 

Wang Xiaoyu revealed that homegrown soy were gradually been dispelled from the oil crushing market due to strong substitutive effects of imported soy.

 

In the first eight months of this year, China imported a total of 39.34 million tonnes of soy, a jump of 17.4% on year. Although the imports are anticipated to shrink in the remaining months of this year, the full year's imports are still likely to stay at around 54 million tonnes.

 

With mounting production cost of soy, the government continues to implement the interim soy purchase and reserve program, and this has helped lift domestic soy prices and accelerate the pace of domestic soy' exiting from the oil crushing market.

 

"To protect the domestic non-GMO soy, the government should roll out more supportive policies," Wang added.