- Last week, Bloomberg reported that soybean crushers in
China are buying more domestic supplies of soybean from state auctions after
the cost of imports surged on the back of the drought in the US.
- In two sales of local soybeans last week, crushers bought
99% of the 394,500 tonnes of soybeans offered. This was the highest take-up
rate since 2010.
- Soybean crushers bought more local soybeans this time
around as the prices were lower than international prices. In the past,
domestic prices of soybean in the auctions had always been higher than
international prices.
- Bloomberg reported that the average price fetched in the
auctions last week was 4,002 yuan per tonne (US$634/tonne) compared with the
current price of 4,570 yuan per tonne (US$723/tonne).
- With the increase in the sale of domestic soybean by the
Chinese government, it was also reported that importers would buy less soybean
from the US. In the first five months of the year, China’s imports of soybeans
rose 15.6% YoY.
- We believe that the sale of soybean from state reserves at
low prices would provide soybean crushers like Wilmar International with
temporary relief.
- Soybean crushers in China have been facing challenging
operating conditions due to the rise in soybean prices and difficulties in
increasing selling prices of soymeal and oil.
- In addition to this, there has been an overcapacity in the
soybean crushing industry in China.
- It is estimated that the total soybean crushing capacity
in China was 110mil tonnes as at end-2011 versus the actual amount crushed of
50mil to 60mil tonnes.
- It remains to be seen if Wilmar’s soybean crushing and
refining division would record a smaller pre-tax loss in 2QFY12 compared with
US$52.5mil in 1QFY12. The group is due to release its 2QFY12 results before or
on 15 August 2012.
- We are maintaining our positive stance on the plantation
sector. We reckon that CPO prices would be supported by surging soybean oil
prices and positive demand for palm oil.
Source: AmeSecurities
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