October 31, 2011


China's September milk powder imports plummet to three-year low



China's whole milk powder imports dropped below 8,000 tonnes in September, the lowest in nearly three years, fuelling speculation in the global dairy market following Fonterra's price forecasts reduction.


Whole milk powder imports in China fell for the fifth consecutive month, Global Trade Information Services data showed.


The country's imports of the product, used largely in yogurt, ice cream, bakeries and chocolates, still remain higher so far in 2011 than a year ago, thanks largely to a jump in imports to 55,000 tonnes in April.


However, the rate of increase of 13%, is far lower than the pace that some observers have been factoring in, with the USDA forecasting a 34% increase for the full 2011, to 430,000 tonnes.


It also raises a further question mark over global dairy prices, which New Zealand-based Fonterra noted on Tuesday (Oct 25) had at its twice-monthly globalDairyTrade auctions, suffered eight successive price falls and one uptick since May.


Fonterra cut its forecast for milk payouts to farmers from NZD6.75 (US$5.52) per kilogramme of milk solids to NZD6.30 (US$5.15) per kilogramme, adding that it was not yet seeing the recovery of international dairy prices we initially anticipated.


A cut in China's whole milk powder purchases would be particularly significant for New Zealand, the world's top dairy exporter, which supplies 93% of these imports.


Indeed, Fonterra ramped up whole milk powder output by 25% to 839,000 tonnes in 2010-11 to tap into Chinese demand.


Although China's skim milk powder imports have been more stable and, unusually, exceeded whole milk powder buy-ins last month New Zealand has a smaller share, of 56%, of this trade.

The data appear to conflict with reports of a scramble by Chinese consumers for foreign product, with Hong Kong and Macau shops imposing limits on purchases of infant milk formula, amid persistent concerns for the safety of domestic supplies following the 2008 melamine scandal.

However, infant formula is derived largely from skim milk powder, over which China's own production capacity is limited, at about 56,000 tonnes a year, and growing slowly.


China's output capacity for whole milk powder is estimated by USDA attaches in Beijing at 1.1 million tonnes, and expected to recover next year to levels reached before the melamine crisis.

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