Massive soybean defaults loom as China buyers play hard-ball
In a sign of the pressure the sector is under, China's Dongling Grain & Oil said it expected to post a loss of 202.8 million yuan ($32.60 million)in the first quarter, versus a net profit of 8.2 million yuan previous year.
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.
"Marubeni is deluded in thinking that payments will come once the cargoes have sailed," said an industry executive also based in Shandong, who declined to be identified
With so many shipments at risk of a default, Chinese buyers now have a upper hand in bargaining for lower prices.
"Most of the cargoes will eventually be sold to China. This will force sellers to renegotiate prices, which will benefit buyers," said Gao Yanbin, an investment manager with agriculture trading firm Shanghai Shenkai Investment Co. Ltd.
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 percent in the first quarter compared with normal months, analysts said.
Shao estimated demand for soymeal could fall 15 percent from 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, adding China's monthly imports between April to July would be more than 5 million tonnes.
Tight Credit, Worsening Cash Flow
China's soybean imports in the first quarter jumped 33.5 percent, a record for the quarter and industry sources see a rush of cargoes in the second quarter. The rise comes amid an increasing use of soybeans in financing trades to secure credit.
Traders estimate more than 10 million tonnes of soybeans, out of China's imports of 63.4 million tonnes last year, are imported for financing annually.
Sunrise, which has 5,700 employees and 27 billion yuan ($4.34 billion) in assets according to its website, launched a financial services firm in 2009, which offers small scale loans.
Banks, once content to rake in profits from the lending, have been spooked by growing losses at crushers and trading firms and have begun tightening credit.
"They are asking for more a higher deposit to opening a LC (letter of credit) nowadays; before it was set at 10 percent of the contract value but banks have gradually raised the level to between 20-30 percent," said an executive at a trading firm.
Industry sources said the hike has severely crimped traders' cash flow, with weak demand leaving them with high inventory they cannot liquidate fast enough.($1 = 6.2220 yuan)
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