News Analysis: China's Oil Mills Sinking Into Doldrums

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Last updated at: (Beijing Time) Monday, July 07, 2003

News Analysis: China's Oil Mills Sinking Into Doldrums

China's dwindling market demand for bean dregs and bean oil and a redundant supply of soybeans have sent the country's oil extraction mills into a depression.

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China's dwindling market demand for bean dregs and bean oil and a redundant supply of soybeans have sent the country's oil extraction mills into a depression.

Wu Yuanzhen, director of the China Futures Association, suggested a stricter control of relevant governmental departments on the approval of oil pressing projects and prudent credit extension of banks toward the establishment of new oil extraction mills and soybean imports.

The latest survey conducted by China's cereals, oils and foodstuffs departments disclose that the country's annual extraction capacity of soybeans in 2002 reached 36 million tons, much higher than the 14.5 million tons that were actually extracted.

In 2003, the country's annual processing capacity is expected to hit 60 million tons and all those minor enterprises with a extraction scale less than four million tons will be landed in bankruptcy, indicated the survey.

However, what faces China's oil pressing industry is a declining market demand for its major products of bean dregs and oil.

According to Wu, the recent crisis of severe acute respiratory syndrome (SARS) in China has seriously affected the country's livestock breeding business, which is apt to be a major consumer of bean dregs, as many Chinese have reduced their consumption of meat and eggs during the crisis, and a number of countries including Japan have imposed a ban on imports of poultry and meat from China.

Although China's soaring soybean price began to drop lately, Wu said, most livestock breeding businesses unable to afford the high-priced bean dregs have turned to other substitutes such as sesame or vegetable seed dregs for a major ingredient of fodder, which further weakened the market demand.

Statistics from the association estimate that the year's market demand for bean dregs by livestock breeding sectors alone may drop somewhere from 10 to 15 percent.To keep up the vitality of the oil pressing industry, Wu said, there must be a niche for profits.

However, as a sudden drop in the soybean price is unexpected, most oil extraction mills who had hoarded soybeans for investment find it very hard to cover their high purchasing or processing costs.

According to Wu, China's soybean prices have kept soaring since early last year and the country's soybean imports and oil pressing business were greatly spurred.

Last year, it took only a few months for an oil firm with a daily processing capacity of 400 tons to rake in several million yuan. And the country's soybean imports during the first five months of this year reached 7.66 million tons, up 168.5 percent over the same period of 2002.

Given the worldwide soybean harvest led by the United States and the South America this year, Wu said, a sustained decline in the soybean price caused by the superfluous supply would be unavoidable.

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