December 31, 2003
 
 
Impact of US Mad Cow Disease Incident on China's Lysine Market (December 31, 2003)
 

An eFeedLink Exclusive Report                 
 

The lysine market in China has yet to be significantly affected by news of the discovery of a mad cow disease incident in the US. In the past week, prices closed marginally lower.

Following discovery of a mad cow disease in the United States, rumors that American authorities would ban the use of meat and bone meal for feed production was rife. This influenced prices of CBOT soybean futures and soymeal futures to surge sharply on last Friday, with March 2004 soybean contracts rising to 800 US cents per bushel, an increase of 35 US cents per bushel.     

Subsequently, spot prices and futures prices of soymeal in China rose in tandem. Likewise, the lysine market in China staged a revival since the start of this week. On Monday, December 29, general transacted prices of imported lysine rose by RMB0.5-1.0/kg, to RMB26.5-27.5/kg. There was an obvious increase in the number of requisitions for price quotes and this signaled that Chinese feed millers are buying the product actively once again. This was an obvious reaction to the mad cow disease announcement in the US at the start of the week.

Market analysts foresee both favorable and unfavorable factors that will continue to influence China's lysine market in the short run:

Unfavorable factors  

• Distributors and traders in the China market are reportedly holding considerable amounts of locally produced 65%-lysine. Furthermore, the second phase lysine project of BBCA Group will commence production soon. Thus, substantial amount of locally produced lysine will enter the market soon;
  
  
• A new local lysine producer, Golden Corn Co. Ltd in Shandong province, a subsidiary of Shandong Juneng Electric Power Group, has already begun its lysine production. Its lysine output will enter the market after its completion of relevant formalities;
  
  
• When China's lysine market reopens after the week-long Chinese New Year holidays in end January / early February, the market is likely to remain quiet and prices may go down for some time; 

Favorable factors

• There are two local lysine producers currently busy arranging their 98%-lysine inventories for export and they are currently facing some tightness in supply;
  
  
• Lysine prices in the overseas market increased gradually in recent days. As a result, the China market will see reduced lysine imports in the near term. Instead, certain amounts of locally produced lysine will be exported from China;
  
  
• The recent upsurge in soymeal prices invoked feed millers' buying interests. Hence the current increase in requests for price quotes;
  
  
• It is three weeks away from the week-long Chinese New Year holiday, feed millers have yet to complete stocking up their inventories, and therefore a peak procurement period for lysine is seen before the holiday starts. 

In general, both the aforementioned favorable and unfavorable factors will determine the direction of China's lysine market in the near future. The demand and supply relationship of the market will remain relatively balanced and little fluctuation is expected.

However, the impact of the US mad cow disease incident might upset this balance in the weeks ahead. The investigation of the incident has just begun and it is still uncertain whether the US will ban the use of meat and bone meal in feed production.

As soymeal is the best substitute for meat and bone meal and lysine is a good complementary feed additive to soymeal, a ban on the use of meat and bone meal will consequently lead to an increase in both the demand and price of lysine.

Concluding, development on the US mad cow incident, price movements of soymeal as well as sales practices of local and foreign lysine producers should be closely monitored. All these factors will determine the direction of lysine price movements in China for the near term.