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China to cancel more US soy shipments as extra tariff looms

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China holds unspecified volumes of state reserves of both domestic and imported soyabeans. Beijing had been forecast to buy 97 million tonnes of soyabeans this marketing year.

Beijing

CHINESE companies are expected to cancel most of the remaining soyabeans they have committed to buy from the US in the year ending Aug 31 once the extra tariff on US imports takes effect from Friday.

China is the world's top soyabean buyer and has yet to take delivery of about 1.14 million metric tonnes of US soyabeans booked for the current marketing year, according to US Department of Agriculture. It reported last week that China had resold some 123,000 tonnes of committed deliveries to Bangladesh and Iran.

"These shipments will be either cancelled or resold if extra tariffs are imposed," said Gao Yanbin, an investment manager with agriculture investment firm Shanghai Shenkai Investment Co. "The tariff rate is too high which will make crushers lose money."

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Some cargoes will get through because shipments destined for state reserves are free from tariffs, he said. China holds unspecified volumes of state reserves of both domestic and imported soyabeans. China had been forecast to buy 97 million tonnes of soyabeans this marketing year.

Analysts don't expect many soya cargoes from the US to arrive after the July 6 deadline as buyers have already stopped shipments. The Peak Pegasus bulk carrier will arrive before the deadline while the Aeolian Fortune and Kea have already arrived, according to Monica Tu, an analyst with Shanghai JC Intelligence Co.

Chinese companies have contracted to increase purchases from Brazil since April and soya inventories at major crushers are currently at the highest in years, according to the China National Grain and Oils Information Centre (CNGOIC). That's likely to change later in the year.

"There will be a supply deficit from the fourth quarter as crushers won't have enough supplies if they don't take US soyabeans," Mr Gao said. Brazilian supplies fall to seasonal lows in the first and fourth quarters, a period when China's imports are normally dominated by the US. The CNGOIC expects Chinese companies may need to import at least 10 million tonnes from the US when South American supplies run down.

"If China intends to keep their crushing plant operating in the fourth quarter and early first quarter, they will need to import US soyabeans even with a 25 per cent tariff," as there are no other options to cover the shortage, said Paul Burke, North Asia regional director with the US Soyabean Export Council. China imported about 25 million tonnes from the US in the fourth quarter of 2017 and the first quarter of 2018, according to customs data.

China will have the "world's most expensive soyabeans", which may boost domestic prices of soyabean meal and soyabean oil, according to Jiang Boheng, an analyst with Luzheng Futures Co.

Premiums for Brazilian soyabeans for August shipment were nearly 70 per cent higher than that for US, according to the CNGOIC. They are at more than 300 cents a bushel over benchmark Chicago soya future prices arriving in China, according to the CNGOIC. BLOOMBERG