Massive soybean defaults loom as China buyers play hard-ball
Chinese buyers may default on a further 1.2 million tonnes of soybeans worth about $900 million being shipped from the United States and South America, to avoid incurring huge losses in a depressed local market, the country's top soy buyer said.
The hard-line approach taken by Chinese buyers raises the possibility that more cargoes could be dumped into the market, 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, Shao Guorui, general manager of Shandong Sunrise Group, said in an interview.
Sunrise accounts for about 12 percent of China's soybean imports and is part of Shandong Chenxi Group Co., a firm run by Shao Zhongyi, China's 357th richest man according to Forbes' 2012 rich list, and Shao Guorui's brother. The family made its money in the petrochemical business.
"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, speaking from a hotel suite he uses when in Rizhao in this eastern province.
"If buyers cannot resolve the issue, they may also cancel future shipments."
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 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 80-100 cargoes for delivery between April to July, most of which were sold by Marubeni.
Benchmark futures for the oilseed in Chicago have gained 14 percent this year. Honouring these deals would cause Chinese buyers to incur a loss of as much as $7 million per shipment, said Shao, as he juggled with multiple phone calls and numerous text messages during the interview.
Marubeni is the biggest soybean exporter to China, shipping about 16 million tonnes a year along with Gavilon, which it bought last year, or about a quarter of the country's annual imports of 60 million tonnes.
A Marubeni spokesman declined to comment, citing confidentiality agreements with customers and suppliers.
Risk of Bankruptcy
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.
"If they take these cargoes, some could go bankrupt. That's why they choose not to honour the contracts," Shao said.
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