Chinese crop giant rivalry behind move in oils

The jump by the handler of China's grain reserves into the retail vegetable oil market appears down to a wish to rival state trading giant Cofco rather than on hopes of an improvement in weak soybean crushing margins.

Sinograin is to sell 200,000 tonnes of edible vegetable oil in 2012, and boost annual crushing capacity to 1m tonnes in five years, according to state media.

The move represents a departure from the state-owned group's traditional role of managing state grain reserves, a role requiring purchases of both domestic and foreign crop, and release to meet national objectives, such as keeping a lid on food prices.

And it comes amid a poor period for Chinese soybean crushing margins, which were negative for much of last year, depressed by controls on edible oil prices as well as some setbacks from disease on domestic hog production.

Sinograin vs Cofco

"The current industry capacity utilisation is about 50% with low/negative margins," a China-based source at a leading commodity bank said.

And the pressure on crushing margins "is not likely" to alleviate soon, unless soybean prices return to downward moves, following a revival of nearly 3% so far in 2012 on the Dalian futures exchange, on a front contract basis.

Sinograin's quest looks instead motivated by a "desire to catch up with Cofco", the state grain trader which has grown into giant with revenues estimates at more than 100bn remninbi a year, the source added.

That is far bigger than the 12bn remninbi taken by Sinograin, on 2009 figures, when it received subsidies of 120 remninbi for each of the estimated 100m tonnes of grain it handled.

Imports drop?

The comments came as China unveiled a decline of 3.9% to 52.64m tonnes in soybean imports for 2011, the first decline in seven years, attributed in part to the weak soybean crushing margins.

The country also relied to a greater extent on supplies sold, at a discounted price, from state reserves, which shrank by some 2.6m tonnes last year, leaving them at an estimated 5m tonnes.

China's soybean imports are seen by the US Department of Agriculture as reviving in the 2011-12 season to 56.5m tonnes, from 50.3m tonnes in 2010-11.

Source: http://www.agrimoney.com/news/chinese-crop-giant-rivalry-behind-move-in-oils--4027.html

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