October 23, 2003
China Soymeal Market Volatile as Outlook Remains Firm On Supply Shortage
China's soymeal markets are likely to remain volatile in the coming weeks, with market participants tracking the Chicago Board of Trade for fresh leads, local traders and analysts said Thursday.
After soymeal prices eased earlier this week from the highs seen last week, buyers have mostly withdrawn to the sidelines amid talks that government intervention through the issuance of new import licenses will increase soybean supplies for crushing, they said.
But despite the cautious mood among buyers about soaring oilseed prices, the downside potential, if any, would be limited in the near term, given the tight global supply situation, traders said.
Soymeal markets in China ended mixed in the week to Thursday, caught between lingering fears over a supply squeeze and concerns that the government's easing of controls over oilseed imports may not immediately lead to a surge in imports, traders said.
Soymeal offered by local crushers in eastern China was quoted around 2,900- 2,980 yuan ($1=CNY 8.26) a metric ton, compared with CNY3,100 a ton last week, traders said.
"The feedstuff producers are reluctant to increase coverage at the current levels. News that 200,000 tons of soybeans from the state reserves are now being released to crushers in Northern China also added to the defensiveness of the market," a trader from a local soybean trading company in Harbin, Heilongjiang province said Thursday.
About 200,000 tons of soybeans from the state reserves, part of the 800,000 tons of soybeans sold in two auctions held earlier this year, were transported to Northern China this week for crushing, a reflection of the government's intention to meet the local demand after shoring up local soybean prices by curbing imports during harvest time, traders said.
The recent increase in edible oils prices in supermarkets, along with the soaring soybean complex, caught the attention of government officials, highlighted by a rare notice on the website of China State Development and Reform Commission, or SDRC.
SDRC forecast China's soybean production in the October 2003-September 2004 marketing year at 16.50 million tons, much higher than the 16.00 million tons recently predicted by a government-backed grain think tank.
China produced 16.51 million tons of soybeans in the last marketing year.
However, it is unlikely that the government will be able to cool the markets, as it was the government's preferential policy favoring large crushers that resulted in the supply squeeze, some analysts said.
"Over four fifths of the import licenses have been allocated to the largest crushers in coastal China this year. Many small crushers have to idle their operation completely despite the fat crush margin, as they have no raw materials," an analyst from a local brokerage house in Dalian, Liaoning province said.
Any fresh arrivals against new import licenses won't be before late November as importers are allowed to sign contracts only after obtaining the licenses from China's quarantine authorities and it takes 30 to 45 days for the cargoes to be shipped to China.
On the other hand, locally produced soybeans have been mostly taken up by large crushers in northeastern China, leaving little for crushers in other parts of the country.
