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China’s soy complex demand likely to fall in H1 2020 on coronavirus outbreak: Rabobank

Chinese soy oil consumption is expected to drop by 7% year on year in the first half of 2020 to 3 million mt, while the soybean meal consumption is projected to drop by 4% year on year to 13 million mt during the period, due to the coronavirus outbreak, according to banking and financial services company Rabobank.

The epidemic, which has already claimed over 2,800 lives, has virtually put China’s business supply chain to a halt, market sources said. The commodity transportation across China has been severely hit due to contagion fear.

According to Rabobank, coronavirus, coupled with extended work absences, temporary transportation controls and logistics delays, and lower consumption, has disrupted the supply chain of the Chinese soybean crushing industry.

China — world’s biggest soybean importer — processes over 80% of imported beans into soybean meal, a vital ingredient for the animal feed industry, while the rest goes into the production of soybean oil.

Foodservice is bearing the brunt of coronavirus, as consumers avoid dining out, the bank said. Thus, soy oil demand through this channel is declining substantially.

The epidemic has also severely affected the livestock industry in China, the bank said. Among all species, poultry is being hit the hardest in Q1, particularly yellow-feathered broilers, as a result of the closure of live bird markets, it added.

The virus’ spread is also putting a drag on China’s hog herd rebuilding, although African swine fever’s impact is slowing down in the country, Rabobank said.

However, the financial institution maintains that the negative impacts of coronavirus on China’s demand for soy oil and soymeal, should be short term.

A strong rebound is expected in H2 for soybean complex demand, boosted by high meat prices, production expansion of white-feather broilers and layers, hog herd restocking, and recovery demand in group dining and foodservice, the report said.

Market participants are unsure on the timing of soy demand recovery. According to the US Department of Agriculture’s outlook report, it is too early to quantitatively measure the impact of coronavirus on soybean demand in China.

Subdued demand for soy oil and soymeal, following a slow recovery from the impacts of ASF and more recently the outbreak of coronavirus, is depressing China’s needs for imported soybeans, including those from the US, Rabobank said.

Under the US-China Phase one trade deal, signed on January 15, the Asian nation has promised to purchase $80 billion worth of US agro products, including soybeans.

Despite the Phase one deal, Chinese crushers still prefer the more price competitive Brazilian beans over the US-origin, market sources said.

According to S&P Global Platts, the price of SOYBEX FOB Santos for April loading was assessed at $345.77/mt, while SOYBEX FOB New Orleans was determined at $350.90/mt on February 28.

Market analysts are bearish on the soybean consumption demand in China amid the uncertainty over the duration and reach of coronavirus outbreak.

Rabobank echoed a similar sentiment.

The impending uncertainty over the actual duration of the virus’ spread and psychological influences could potentially impede soybean consumption for a longer period, the bank said.
Source: Platts

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