Comfortably-placed China good for grain, oil markets

by Dave

Economy-News-The Economic Times

Take oilseeds. This year China expects to harvest 56 million tonnes oilseeds, a jump of 3 mt over last year. Soyabeans are China’s largest oilseed crop, and production has risen 25% in last five years. But consumption of soya as food has jumped 43%. Last year, China’s soya harvest slumped to the lowest in seven years. That’s why a 18-mt crop this year would be a welcome relief.

Since local vegetable oil production of less than 10 mt is not enough to meet Chinese demand of 23 mt, every year China also imports 2 mt palm oil from Malaysia and Indonesia, and is the single biggest buyer of soyabeans from US and Brazil.

This year, with rebound in its own production, China will not be in a hurry to import either beans or vegetable oil. That should cool down the international oilseed and edible oil market. There is currently so much edible oil in the Chinese pipeline that local brands chopped MRP by 10% last month.

The upside is that with vegetable oil affordable again, and the economy growing at 8%, Chinese families may start buying more. That could trigger higher imports again, putting pressure on the international market.

For Indian oilseeds industry, China’s temporary retreat from the world market couldn’t be worse timed. With a large soya crop of our own this year, the general bearish trend could settle down for the entire season if global palm and oilmeal markets remain lacklustre. Palm oil prices have fallen 47% from their March peak of 4,486 ringgit.

Indian companies, setting up large plants in an asset creation overdrive funded by extraordinary profits last year, would thus have to depend even more on savvy trading in a volatile market to keep bottomlines above water. Market players say even the usual 2% profit margin looks iffy.