Weather, festive demand stoke China's soyoil appetite
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Bron [2011-05-20]
China's recent big buy of US soyoil heralds a scramble for even more cargoes as domestic supplies shrink on strong festive demand and crops are hit by erratic weather.
The world's second-largest consumer of vegetable oil could buy 5 to 10 percent more soyoil in 2010 than the 2.4 million tons it bought last year, with purchases picking up in the second half as traders fret that cold weather may shrivel the domestic soy crop.
"The droughts last year have limited soy production and now there is talk of frost. China is now more of a price taker than a price maker," said Michael Greenall, an analyst with BNP Paribas based in Malaysia.
Last month's purchase of 80,000 tons of soyoil by Sinograin, which also manages China's grains and vegetable oil reserves, signals growing fears of a sharp drawdown in commercial stocks.
"China usually does not buy in big quantities from the United States and now it looks set to buy big after the National Day holiday in early October," said a trader with a commodities dealing desk in Singapore.
"Don't be surprised if soyoil on Chicago starts moving up by at least 10 percent. Those high commercial stocks in China are not going to last forever."
Crush margins of 150 to 200 yuan and record soybean imports have boosted commercial soyoil stocks this year. The China National Grains and Oils Information Centre (CNGOIC) has pegged levels at 1 million tons - the highest in 2010.
Sinograin last month bought soyoil at $920-$930 a ton for delivery in October, around the time of the National Day holiday and in December, before the 2011 lunar new year, signaling a restocking move, Chinese traders said.
The landed cost comes to 8,400 yuan per ton, a little higher than the most-active May 2011 soyoil contract on the Dalian Commodity Exchange, which has recently rallied on weather concerns across the globe.
More imports are on the way. CNGOIC estimates August and September soyoil imports will stand at 400,000 tons compared with 407,092 tons for January-July of 2010.
"We believe Sinograin cannot source enough soyoil at home while it anticipates higher domestic demand in coming months, ahead of traditional holidays," said a soyoil trader in Shanghai.
CGNOIC estimates that China's 2010 overseas purchases of soybeans will hit a record 51 million tons, up 20 percent, or 8.5 million tons.
With soy's oil yield of 17 percent, Reuters calculations show this 8.5 million ton figure implies a slower growth pace than the extra 11 million tons China must crush in order to replace the 2 million tons of soyoil it buys from Argentina each year.
There is another option. To manage the peak consumption season, China can sell soybeans and soyoil from State reserves.
Sinograin has to look at selling some of the estimated 1.4 million tons of soyoil and 5 million to 6 million tons of soybeans it holds for the State in order to clear room for the October harvest.