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China's soybean demand in Q4 set to slacken as crushers face power cuts: trade

Highlights

Power outages limiting soybean meal production

Crush margins improve slightly as soybean meal stocks dwindle

China's soybean demand is expected to slacken in the fourth quarter of 2021 amid widespread power outages faced by local crushing plants, market sources told S&P Global Platts Sept. 24.

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With frequent power cuts in recent days, China-based crushers have scaled down their operations significantly. As a result, the country's import demand for raw soybeans is expected to be reduced in the last quarter.

Contrary to some media reports, China-based soybean crushing plants have not been ordered to shut down, Shanghai-based agricultural consultancy JCI China told S&P Global Platts. Although, some crushers have been asked to scale down their operations due to the government's energy consumption control policy, it said.

China -- the world's biggest soybean purchaser -- imports on average over 98 million mt of beans in a year and processes nearly 80% of the imported oilseed into soybean meal-based animal feed. So, demand from local crushers generally determine the overall soybean imports by China.

Power cuts weigh on supply

According to local media reports, 11 crushing plants in North China, seven in East China and nine in South China have been affected by the power outages.

The uncertainty surrounding crushing operations are likely to linger in coming days as well.

Soybeans crushing output till the end of Chinese Golden week Oct. 7, is expected to be sharply reduced amid widespread power cuts, a market source said.

Typically, power consumption in China spikes in the last quarter every year. So, frequent power rationing is likely to markedly impact crushing operations in coming months as well.

Power outages will decrease the soybean crushing volumes to some extent and cause some concerns about soymeal supply, JCI China said.

In the short-term, dwindling crushing volumes are expected to have a positive impact on the industry as lower output will allow it to match the slow soybeans purchasing pace, with fewer beans cargoes booked for September and October delivery, according to the sources.

Oilseed demand seen dipping?

China's soybean crushers have been struggling with negative margins since June and the recent power restrictions could help elevate the margins a bit.

China's gross crush margin improved by $10.42/mt on week to minus $7.52/mt, while prices for imported soybeans to China dropped by 1.4% on the week to $623.82/mt, according to S&P Global Platts SOYBEX CFR China soybeans assessment Sept. 23.

According to S&P Global Platts Analytics, China is forecast to purchase an all-time high 102 million mt of soybeans in marketing year 2021-22 (September-August) amid the country's robust recovery from African swine fever, a fatal disease for pig population.

However, if the local crushers continue to face power shortages, the oilseed demand projection could be revised down, especially with the prevailing bearish sentiments in China's soybean market.

"The energy control issue may last into October but in the medium term, we should pay more attention to the low arrivals of imported soybeans in the coming months and decreasing hog margins in China," JCI said.