Chinese rice imports over January-August have more than doubled from 1.52 million mt in 2020 to 3.2 million mt in 2021, according to data from Chinese customs.
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Over the same period, rice exports -- predominantly comprising old crop sales --- have remained steady year on year at 1.69 million mt. If this trend continues, the world's largest producer is on course to become a net rice importer for the first time since 2018.
The reasons for this shift are numerous, stretching beyond rice and into other commodities, while the consequences of it are far reaching and likely to bolster Chinese stocks.
Indian rice has come from representing less than 1% of Chinese rice imports in 2020 to representing 23% so far in 2021, making it the largest supplier of rice to China, according to the US Department of Agriculture, citing Chinese customs data. India was closely followed by Vietnam at 22% and Pakistan and Myanmar at 20% and 18%, respectively.
The shift in Indian market share is undeniably remarkable but is partially explained by the recent focus of Chinese demand. The USDA reported that 97% of rice imports from India over January-August comprised broken rice and that broken rice comprised around half of total imports, whereas milled rice historically reigned supreme.
Indian customs data also shows that 114,581 mt of Indian rice was shipped to China in August. As this rice is unlikely to have reached China that month, it is reasonable to suspect that it will only be recorded in Chinese import figures later this year. It also highlights that there are no immediate signs that China's taste for Indian broken rice is receding.
This demand for broken rice primarily stems from feed demand as prices of other feed grains, notably corn, have increased. The differentials speak for themselves. S&P Global Platts delivered Corn CFR North East Asia assessment reached a 2021 high of $349/mt in May, while Platts origin assessment of Indian 100% broken white rice was assessed at a 2021 low of $270/mt FOB. While this differential has narrowed to around $50/mt by October, it is clearly still viable for buyers.
The USDA also points to the substantial dip in Asian origin pricing for whole kernel rice as a further reason for the uptick in imports. Taking the benchmark Thai 5% broken white rice as an example, Platts assessment dipped from a 2021 high of $542/mt FOB in February to a 2021 low of $370/mt FOB in August, a drop of almost a third. Similar declines were seen in other origins, notably Vietnam.
Concurrently, because of domestic support, even the price of old crop Chinese paddy is more expensive than most Asian 5% broken white rice varieties on an FOB basis. In recent National Grain Trade Center old crop paddy auctions, the average price has typically been recorded around Yuan 2,500/mt, or $391/mt.
In this context, the Chinese tariff rate quota import tax of 1% allows importers to make substantial profits. One major Singapore-based trader told Platts earlier this year that "having [an] import quota equals good local margins... like, huge." Referencing importers' notorious reputation for demanding high quality at low prices, another Singapore-based trader remarked that "that's why they make big money."
However, with broken rice prices so favorable, the USDA reported that some traders "[do] not bother applying" for a quota, opting for out-of-quota imports from most favored nations, which still only has a 10% import tariff attached.
Stocks likely to spike
In the context of the surge in imports and a dip in domestic prices due to competition, attempts by China's National Grain Trade Center to release old crop paddy stocks have hit a brick wall. In September 2020, the NGTC sold 1.3 million mt of paddy out of a possible 13 million mt. In contrast, this September the NGTC was only able to sell 22,827 mt out of a possible 7.2 million mt.
Due to China's Golden Week (Oct. 1-7), only one NGTC paddy auction has been held so far this month. However, only 52 mt was successfully auctioned out of a staggering 1.8 million mt.
Not surprisingly, sources have referred to a "slump in prices" and remarked that "prices are quite soft now" in China, with no signs of this changing as harvesting in the country peaks. Reports of developments to double-cropping rice varieties have come thick and fast in recent months, with the USDA also recently projecting Chinese milled rice output in the 2021-22 marketing year (July-June) at 150 million mt, up 1.1% year on year.
With these developments, it would appear likely there will be more pressure on the Chinese government to find a way to reduce China's substantial rice stocks other than through the domestic market. While one of these methods would be to facilitate further exports, so far this option does not appear to have been capitalized on.
By August in both 2020 and 2021, exports totaled 1.69 million mt, according to Chinese customs. While not slipping year on year, 2021's August total was down 18% from 2019's August total.
The USDA relates this to price: "Chinese rice prices seem to have lost their competitiveness in the global market as international rice prices dropped significantly in 2021." However, this does not explain why exports dropped so significantly in 2020. Additionally, Chinese old crop rice is still competitive in most markets, according to sources.
In the Mediterranean, the price of Chinese old crop has been reported at around $515-$525/mt CFR Mediterranean ports in recent weeks, far below competition from European suppliers, much to their concern. For West Africa, the price was reported at around $475/mt CFR West African ports. While the spread between China and Asian origins has undeniably narrowed in recent months, Chinese rice still has the edge on most Asian origin white rice markets in the region by approximately $10-$40/mt.
It is possible that some West African buyers have switched back to Thai or Indian rice due to their preference for long grain compared with the Chinese short/medium grain that is typically supplied as the price spread narrowed.
However, it is much more likely that the pace of exports so far this year has been determined by China's annual export quota -- decided early in the year -- which decrees how much old crop is available for export through third party suppliers.
Sources have consistently reported that the Chinese government has been conservative in its old crop stock releases in the past two years and it shows. But with the drop in local prices, the continued build-up of stocks in China and the spike in imports this year, an increase in China's 2022 export quota is looking increasingly logical and possibly necessary.