October 24, 2003



China Soyoil Prices Unlikely To Ease Despite Bean Imports


The sharp rally in soyoil prices in China will likely continue in the near term as the current tightness in soybean supplies may take months to ease.


Despite talk that the government has started issuing new import permits for genetically modified soybeans after the Sept. 20 expiry of the earlier import rules, it is unlikely there will be a rush of imports in November or December, traders and analysts said.


"Large edible oil makers have already (raised) prices because we will definitely suffer losses if oil prices stay unchanged amid soybean's crazy rise," a senior sales official with East Ocean Oils & Grain Co., China's biggest soyoil producer, said.


Last week, East Ocean Oils raised soyoil prices by 15% from levels in early October.


The official at East Ocean's Shanghai office said the wholesale price of a five-liter-pack of soyoil was raised to 37 yuan ($1=CNY8.289), while retail prices rose to CNY40.


Other major soyoil producers, namely Shenzhen Nanshun Oils and Fats Co. and Yellow Ocean Grains & Oil Co., also raised their oil prices by around the same rates.


And the situation isn't expected to change any time soon given the global supply is also tight this year, analysts said.


"It seems like we have to get used to more expensive soyoil," said an analyst at Zhejiang Tianma Futures in Shanghai.


Chinese cooking oil demand usually peaks toward the end of the year ahead of the New Year and Lunar New Year celebrations. Chinese consumers generally prefer soyoil although other options such as sunflower oil, peanut oil and olive oil are also available.


According to the official Xinhua News Agency, soyoil prices reached CNY7,200 a metric ton in the coastal province of Shandong this week, about 17% higher from prices in late September.


In China's central city of Wuhan, soyoils with low prices weren't available, Xinhua reported.


Traders said soyoil prices in eastern China have surged to CNY8,000/ton or higher from around CNY5,000/ton in the same period last year.




With a 5% increase in acreage reported earlier, the Chinese government was

hoping for a higher soybean output this year.


But it was not to be, as a drought in May and too much rains in September affected yield, particularly in the top soybean growing region of Heilongjiang.


Over the weekend, Xinhua estimated China's soybean production in the October 2003-September 2004 marketing year at 16.50 million tons, little changed from the 16.51 million tons produced in 2002-03.


Rainfall was two to three times higher in September than in the same month last year, and too much water content in soybeans will reduce oil yield, traders said.


However, despite the poorer quality and higher prices, local farmers are holding their stocks back in the hope that prices may rise further.


The procurement price of soybeans harvested this fall was around CNY2,300/ton when the first batch hit the spot market late September, up from around CNY1,900/ton last year.


Prices shot up to around CNY2,900/ton by the end of last week before easing slightly to around CNY2,640/ton this week.




As the bulk of the domestic soybean crop usually reaches the market in October, the government is expected to speed up the issuance of new soybean import licenses to boost domestic availability.


According to traders, the State Development and Reform Commission held a special meeting Monday to discuss the rally of grain and oil prices and at least one large trading house has received fresh permits to import genetically modified soybeans since then.


However, any substantial fall in domestic soybean prices is unlikely even if the government allows more imported beans to come in.


International soybean prices have been on fire after the U.S. Department of Agriculture earlier this month slashed its estimate of the 2003-04 U.S. bean crop by a whopping 175 million bushels from its September estimate to 2.468 billion bushels.


In a continuing rally since then, soybean futures at the Chicago Board of Trade settled sharply higher Thursday in tandem with the entire grain complex that shot through the roof on massive fund buying.


Traders said China has been the key driving force behind this rally and appeared set to retain that position in the near term.


China's current import pace of U.S. soybeans is nearly twice last year's level at this point in the marketing year. According to the USDA, China has purchased 2.93 million tons so far for the 2003-04 marketing year. Last year at this time, 1.53 million tons were booked for China.


As China depends on imported soybeans to meet about half of its domestic requirement, Chinese traders are concerned that any further rally in Chicago could put upward pressure on the already high soybean and soyoil prices in the local market.
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