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China's top soy buyer to honor import deals
Last Updated: 2014-05-15 03:49 | Global Times
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China's largest soy buyer Shandong Sunrise Group said it will not default on soybean contracts despite facing big losses, in order to protect its relationship with suppliers, State media reported on Wednesday.

Sunrise, which accounts for 12 percent of China's soy imports, has previously been linked to defaults by Chinese media reports and traders, but the company denied last month it had defaulted on any contracts.

Buyers in China recently defaulted on at least 500,000 tons of soybean shipments and threatened to default on more shipments that have not yet been priced, capping a rally in soybean prices.

Shandong Sunrise Chairman Shao Zhongyi said his firm would honor its purchase agreements despite facing a loss of about 200 million yuan ($32 million), as weak domestic demand means crushers are losing money for processing soy into meal and edible oil.

"Based on current prices, if we take all the cargoes as previously planned, the losses will be 200 million yuan," Shao told the Economic Information newspaper, run by the Xinhua News Agency.

"Despite the losses, we must honor the contracts," he said, adding that defaults risk ruining the long-term relationships Sunrise has built with suppliers and buyers.

Shao Zhongyi is China's 357th richest man according to Forbes' 2012 rich list. The family made its money in the petrochemical business.

His brother, Shao Guorui, told Reuters in an interview last month that Chinese buyers could default on about 1.2 million tons of soybeans worth about $900 million being shipped from the US and South America, to avoid incurring huge losses in a depressed local market.

Shao said some trading firms that were new to the soy industry may have defaulted on cargoes because they were unable to absorb losses. He did not name any firms.

China accounts for 60 percent of the global soy trade and top seller Marubeni has had to divert some shipments to other destinations after buyers defaulted on as many as three of its cargoes.

It is not clear if Marubeni and other sellers have agreed to revise the contracts to lower prices.

Sunrise also urged the central government to support measures to set up China's own pricing center in Shanghai - similar to the Chicago Board of Trade - so that Chinese buyers can have more say in pricing, the Economic Information newspaper reported.

Marubeni sold at least one soy cargo defaulted on

At least one soybean cargo defaulted on by Chinese importers was sold by Japan's Marubeni Corp, Reuters reported over the weekend, citing unnamed sources, as slowing demand and tightening credit in the world's top importer hits oilseed trade.

Marubeni is one of the biggest soybean exporters to China, shipping 15 million to 16 million tons a year, or about a quarter of the nation's annual imports of 60 million tons.

One Tokyo-based source with direct knowledge of the situation said Marubeni incurred a loss of $4 million on four to five soybean cargoes which were defaulted on by Chinese buyers as they could not get letters of credit.

One soybean trader in Beijing said Marubeni had supplied cargoes that were defaulted on in China, while an oilseed trade source in Singapore said at least one of the cargoes, which on its way to China, had been sold by Marubeni.

Importers default on soy cargoes

Chinese importers have defaulted on at least 500,000 tons of US and Brazilian soybean cargoes worth around $300 million, the biggest in a decade, as they struggle to get credit due to losses in processing beans, trade sources said on Thursday.

Three companies in East China's Shandong Province had defaulted on payments for the shipments as they were unable to open letters of credit with banks, said one Beijing-based source.

A string of defaults on loans, bonds and shadow banking products in recent weeks has highlighted rising credit risks in China, partly fueled by signs the economy is slowing.

Semiconductor, software and commodities firms are among the most at risk of credit defaults, a Reuters analysis showed.

Up against a cooling Chinese economy and signs that authorities will not step in every time a loan goes bad, banks are becoming more hard-nosed and selective about whom they lend to.

"There are five to six (panamax) cargoes which are unable to be unloaded at ports because buyers cannot open LCs (letter of credit) and there are no LCs for an additional 5 to 6 cargoes floating on the sea," the Beijing-based source said. Each panamax cargo is for 50,000 to 60,000 tons.

Defaults by buyers in China, which imports 60 percent of the soybeans traded in the world, would likely cap a rally in global prices as it coincides with bumper supplies from Brazil and Argentina hitting the market.

With negative processing margins and tightening credit, sources said there could be more defaults on cargoes of soybeans, crushed to make cooking oil and animal feed ingredient soy meal.

Crushers are losing 500 yuan to 600 yuan ($81 to $97) for processing a ton of soybeans, compared with a 600 yuan profit in the fourth quarter of last year during peak consumption and when some shipments were delayed.

The fat margin in the fourth quarter prompted China to purchase 27.7 million tons of US soy so far in the current marketing year to August 2014. China bought a total of 21 million tons of US soybeans the year before.

China imported 15.35 million tons of the oilseed in the first quarter, up 33.5 percent on a year earlier, according to official data issued on Thursday.

"Crushers are making big losses while downstream product meal is not selling very well," said an official at a body, which oversees soybean imports under the Ministry of Commerce.

Imports could fall below 15 million tons in the third quarter from 18.25 million in the same period last year, traders and industry officials said.

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