November 25, 2003

 

 

China To Gain From Lower Soybean Prices On Trade Dispute

 

An escalating trade spat between the U.S. and China is unlikely to hit bilateral soybean trade and has instead raised hopes that Chinese importers could gain if import costs fall on lower soybean prices in the U.S, traders said.

 

China is the world's largest importer of soybeans while the U.S. is the largest exporter, with Sino-U.S soybean trade estimated around $1 billion annually.

 

"I believe the government will fully consider soybean processors' interests...To set obstacles on soybean imports will only hurt local processors as the lack of domestic bean supply will force processors to shut operations," said an official who deals with bean imports at leading soybean processor Yellow Sea Grains and Oil Co. in Shandong province.

 

Last week, China indefinitely postponed a planned official shopping trip to the U.S after the later unilaterally slapped import restrictions on certain Chinese textile items and such as knit fabrics.

 

A spokesman for China's Ministry of Commerce said the trip has been delayed because of technical reasons but wouldn't confirm if a new date had been set.

 

While this has raised concerns that China could set trade barriers on soybean imports to retaliate against U.S. sanctions on some Chinese products, a majority of trade participants spoken to agreed any restrictions on soybean imports was unlikely.

 

"It is totally a political (issue) between the two countries...Chinese imports won't be affected even if officials can't make the trip to the U.S.," said a trader at Zhejiang Nanhua Futures.

 

Over the weekend, Chinese Premier Wen Jiabao described trade between China and the U.S. as mutually beneficial and proposed a "mechanism for regular discussion" to resolve bilateral trade disputes.

 

Wen's comments, made in an interview to the Washington Post ahead of his official visit to the U.S. in early December, reassured local traders and importers that the trade spat would eventually be resolved through negotiations.

 

LOWER PRICES COULD BE GOOD FOR CHINESE IMPORTERS

 

While the dispute hasn't had any impact on the pace of Chinese imports as such, soybean futures at the Chicago Board of Trade have come under pressure on news that the shopping trip was postponed.

 

A day after the postponement, China's Vice Minister of Commerce Ma Xiuhong said the country could raise import tariffs on a range of U.S goods if the later ignored a World Trade Organization ruling that U.S. safeguard tariffs on steel were unlawful, the official Xinhua News Agency reported.

 

Significant losses were seen across the CBOT soy complex Monday, with front-month January beans sliding to a one-month low.

 

Fund selling was triggered after the January soybean contract finally violated key technical support at $7.38 per bushel, the former November low.

 

Bulls had little reason to counteract the pressure with recent buying by China curbed amid sufficient near-term supplies. Lately, rumors have also circulated that China may have switched some U.S. soybean business to South America, which made bulls uneasy.

 

Soybean analysts in China noted CBOT's sharp retreat since last week and the continued selling pressure has reduced import costs for Chinese buyers.

 

"Import prices will be declining due to the trade war (which has pressured CBOT soybean futures lower)," said Zhou Xiaotao, an analyst at Guangfa Futures in Shanghai.

 

But buyers are unlikely to increase soybean imports from the U.S. in the next few months despite the fall in prices as there is ample near-term supply in domestic market, traders said.

 

IMPORT PLANS REMAIN INTACT AMID DOMESTIC SHORTAGE

 

However China's overall import plans will remain intact as a severe domestic shortage would make it difficult for China to do away with imported beans for long.

 

Moreover, the Chinese government hasn't been perceived to be tightening the release of import permits following the trade dispute.

 

According to trade estimates, around 600,000 tons of imported soybeans have arrived in Chinese ports so far in November, much higher than imports in the same period in October.

 

As China's domestic soybean production is able to meet only half of total domestic demand, the rest will need to be met through imports, mostly from the U.S., Brazil and Argentina, traders said.

   

to 18.4 million metric tons, with 35% coming from the U.S. January-October imports have already surpassed the 11.3 million tons imported in all of 2002.

 

Traders said U.S.-origin soybeans would still be the first choice for Chinese buyers in the next few months until South American beans hit the market around March.

 

Gradually, China is expected to buy cheaper soybeans from Brazil and Argentina, but the switch won't have anything to do with the current trade dispute, analysts and importers said.

 

According to the official with Yellow Sea Grains and Oil Co., South American soybeans are usually $10/ton cheaper than U.S soybeans, once they are available.

 

"We will buy South American beans as soon as they hit the international market in March," he said. "But the trade war is not a factor pushing us to give up buying from the U.S...We are more concerned about who gives us lower prices."

 

China's largest soybean processor East Ocean Oils & Grain Co. would also buy more of South American beans in the coming months, an official with the company said, adding it was common practice for Chinese importers to switch to South American beans by March each year.