April 21, 2014
China buyers to default 1.2 million tonnes of soybean
Chinese buyers may default on a further 1.2 million tonnes of soybeans worth about US$900 million being shipped from the United States and South America, Reuters reports.
This may happen after buyers walked away from at least 500,000 tonnes of shipments in recent weeks.
Trading firms mostly clustered in China''s Shandong province have refused to make payments for about 20 shipments to avoid incurring huge losses in a depressed local market, Shao Guorui, general manager of Shandong Sunrise Group, said.
Sunrise accounts for about 12% of China''s soybean imports and is part of Shandong Chenxi Group Co., a firm run by Shao Zhongyi, who is in Forbes'' 2012 rich list, and Shao Guorui''s brother.
"Most of the cargoes were delivered by the seller before receiving letters-of-credit and buyers are unwilling to pay now because they will suffer massive losses," said Shao.
"If buyers cannot resolve the issue, they may also cancel future shipments."
Trading firms in China are battling with weak demand for soymeal. Crushers, confronted by negative margins, are also unwilling to accept cargoes at current prices.
Chinese demand for soymeal, used in poultry feed and the main product made from soybeans, has been hit by bird flu outbreaks, cutting demand by as much as 30% in the first quarter compared with normal months, analysts said.
In a further sign of the pressure the sector is under, China''s Dongling Grain & Oil said it expected to post a loss of US$32.60 million in the first quarter.
Shao estimated demand for soymeal could fall 15% from a year ago as farms had been reluctant to restock poultry after heavy losses last year.
"We don''t expect demand nor prices to improve in the next one or two months," he said.
Shao said his estimate on the 20 shipments at risk of default was based on discussions with other crushers and trading firms in Shandong province, who held a meeting last week.
Shao declined to say if his company had also defaulted or had any plans to. In 2013, Sunrise cancelled shipments from Japan''s Marubeni Corp. due to Brazil''s port congestion.
Some Chinese commodity buyers have previously threatened to default, or cancel cargoes, to force sellers to take lower prices.
Shao estimated that the companies behind the 20 shipments had booked between 80 to 100 cargoes for delivery between April to July, most of which were sold by Marubeni.
Benchmark futures for soy in Chicago have gained 14% this year. Honouring these deals would cause Chinese buyers to incur a loss of as much as US$7 million per shipment, said Shao.
Marubeni is the biggest soybean exporter to China, shipping about 16 million tonnes a year along with Gavilon, which it bought last year. Its shipment accounts for about a quarter of the country''s annual imports of 60 million tonnes.