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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (14705)	5/31/2004 10:34:06 AM
From: russwinter	Read Replies (3) \| Respond to of 110194

Follow up on Chinese soybean debacle. This is what happens when you try and produce at at loss, and depend on crony lending to do it. Just more signs that the Train Wreck is turning the lights off: Chinese crushers are struggling with a liquidity crunch after months of negative margins, slack domestic meal demand and a government credit tightening aimed at reining in the country's roaring economy. Reuters UPDATE - Soy suppliers suspend China loading, futures jump Monday May 31, 3:57 am ET By Nao Nakanishi HONG KONG, May 31 (Reuters) - Most international soy suppliers had by Monday suspended loading South American cargoes for China, the world's top importer of the oilseed, due to increasing payment uncertainties and quarantine complications. Traders said there was a growing risk of defaults as many Chinese buyers were reluctant to pay the fees for cancelling or delaying expensive South American cargoes contracted during a surge in international soy prices and freight rates. "You don't have a choice" but to suspend loading, said a senior trader at an international house. "It's common sense." The traders said 20 to 30 cargoes were at risk of defaults, if not more, as most cargoes scheduled for shipment in June and July had been hit. There was also a number of threatened cargoes already sailing towards China, or that had arrived there. "It's a crisis," said a second senior trader at an international house in Beijing. "There are contracts... If the market changes and they don't want to perform, they should pay." Adding to the complications, Chinese quarantine authorities, known as CIQ, rejected a third Brazilian cargo over the weekend, saying the cargo in Zhangzhou in southern China was contaminated with a harmful chemical known as carboxin. An industry source in China and the traders said CIQ had also added the Cargill (News - Websites) parent company to a long list of suppliers barred indefinitely from bringing Brazilian soy into China. The list includes almost all the top players, including Cargill's Brazilian unit, Louis-Dreyfus Asia, Archer Daniels Midland Co's (NYSE:ADM - News) Brazil unit and Noble Group Ltd (SES:NOBG.SI - News). "We are okay now. But you don't know what will happen to us tomorrow," said a trader at an international house that is not on the list and has a large soy business in China. One industry source said China rejected the Zhangzhou cargo after officials had found nine contaminated, coloured beans after a thorough search of the 61,100-tonne cargo. DALIAN SURGES, CRUSHERS MEET With the prospect of soy arrivals shrinking in the coming months, soybean (0#DSA:) and soymeal futures in Dalian (0#DSM:) rebounded to their three-percent daily limit shortly after the opening. By Friday, they had dropped to lows not seen for months. The traders said the futures markets were also helped by an agreement by Chinese crushers, who met on Saturday to set a floor price for domestic soymeal prices at 2,900 yuan ($350) a tonne after it sank towards 2,600 yuan last week. "It's not a joint action. But no one is making money. That is the force of the market," said one source at a buyer. Chinese crushers are struggling with a liquidity crunch after months of negative margins, slack domestic meal demand and a government credit tightening aimed at reining in the country's roaring economy.. The cost of soy imports nearly doubled in a year to about $430 a tonne, C&F China, before the latest plunges in Chicago prices and freight rates reduced replacement costs towards $350 and below. Asked if Chinese crushers could afford the damage to their reputation from a default, one industry source in Beijing said last week: "Maybe they feel it might be okay if they all do it together. It is likely to happen." By 0620 GMT, the most active Dalian soy September was stuck at the ceiling of 3,255 yuan per tonne, up 94 yuan, while September meal prices stood at 2,745 yuan, up 105 yuan from the close on Friday. "The market has to rebound. But I am surprised that it has rebounded so quickly," said the industry source in China. "Yes, there is a heavy inventory in China. But chicken and pigs are still eating (animal feed). Hopefully the market realises that." The traders cited rumours that Cargill was already diverting cargoes away from China and would not load any new ones for China in Brazil for the time being. No official comment was immediately available. (Additional reporting by Niu Shuping in Beijing and Lee Chyen Yee in Shanghai)