Analysts expect China to issue grain import quotas after state sales end

Beijing | Reuters — China’s grain imports could plummet this year, with the government determined to sell off as much of its bulging state grain reserves as possible before it finally grants mills permission to buy overseas, analysts said.

In previous years, private mills were normally allocated grain import quotas in January, allowing them to start ordering cargoes immediately, but it could take several more months this year as Beijing revamps its quota allocation system in a bid to reduce stockpiles, analysts said.

While overall import quota volumes are unchanged, the amount allocated to individual mills will depend on how much they are prepared to buy from state reserves.

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“Corn imports will surely decrease this year as the reserve-linked quota allocation system will help the government get rid of stocks while discouraging mills from importing,” said Feng Lichen, a senior analyst with industry portal yumi.com.cn.

Quotas will be allocated once mills have paid for and received grain bought at auction and the whole process could stretch out for more than two months.

Total corn import quotas amount to 7.2 million tonnes, but 60 per cent of that, earmarked for state-owned entities, will not be issued at all in a bid to encourage state reserve sales, Feng said.

But the government could struggle to issue the remaining 40 per cent to private mills, with many reluctant to buy reserves that are often low in quality and far too expensive, he added.

In order to obtain quotas, some mills pay more than 240 yuan (C$46) per tonne higher than the market price for state corn stored in northeastern provinces.

During the first round of auctions from Jan. 6-8, only 36 per cent of the corn on offer was sold, amounting to 1.7 million tonnes. The remainder will go on sale again next week.

“Mills are motivated to profit from cheaper imports, but the price gap changes every day and they are not sure when they can get the quotas,” said another industry source. “They face potential risks if overseas prices rise.”

Auctions for state wheat reserves have proved more popular, with flour mills desperate to get hold of import quotas and gain access to higher-quality produce, which is in short supply in China.

This week, the government sold 83.6 per cent of the two million tonnes on offer at an average price of 2,569 yuan (C$491) per tonne for white wheat and 2,635 yuan for mixed quality wheat, according to results posted by the National Grain and Oil Trade Centre.

COFCO, a state-owned trader, is also sourcing high-quality wheat overseas and bought two cargoes earlier this month, industry sources said.

— Niu Shuping and David Stanway report for Reuters from Beijing.

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