www.sinograin.com.cn china’s oils and oilseeds industry situation and development prospect xue...

www.sinograin.com.cn

China’s Oils and Oilseeds Industry Situation and Development Prospect

Xue Cong CHEN, Sinograin Oils Corporation

2012-11-7

¨ I. Supply and Demand of Oils and Oilseeds ¨ (I) Supply of Domestic Oilseeds

¨ (II) Demand for Oils and Oilseeds

¨ (III) S&D Balance of Oils and Oilseeds

¨ (IV) Impacts of Reserve Policies on S&D

¨ II. Latest Development of China’s Oils and Oilseeds Industry

¨ (I) Rapid Capacity Expansion

¨ (II) Capacity Distribution

¨ (III) New Trends in Crushing Industry

¨ III. Outlook of China’s Oils and Oilseeds Industry

¨ (I) Demand for Protein/Oils Will Keep Growing but at a Lower Speed

¨ (II) Future Trends

¨ (III) Small- and Medium-sized Packages will Boom as Driven by Upgraded Food Safety

¨ (IV) Lasing Influence of Macro Control on Oils and Oilseeds Market

Contents

I. Supply and Demand of Oils and Oilseeds

Contents

(I) Supply of Domestic Oilseeds 1. Growth of production of oilseeds slows down, especially soybean and rapeseed.

Production of peanut and cotton seed fluctuated between 9 – 11 million tons.

06/07 07/08 08/09 09/10 10/11 11/12 -

5,000

10,000

15,000

20,000

25,000

30,000

葵花籽棉籽花生油菜大豆

Acreage of Oilseeds (in 10,000 hectares)

06/07 07/08 08/09

09/10

10/11

11/12

-

10,000

20,000

30,000

40,000

50,000

60,000

葵花籽棉籽花生油菜大豆

Production of Oilseeds (in 10,000 tons)

Sunflower seed

Cotton seed

Peanut

Rapeseed

Soybean

Sunflower seed

Cotton seed

Peanut

Rapeseed

Soybean


Source: Sinograin Oils Corporation

2. Production and acreage of soybean and rapeseed decreased year by year due to lower comparative income and yield.


(I) Supply of Domestic Oilseeds


Production & Acreage: Soybean Production & Acreage: Rapeseed

Production(in 1,000t)

Acreage(in 1,000h)

Production(in 1,000t)

Acreage(in 1,000h)AcreageAcreage Production Production

3. Factors decelerating production growth(1) After many years of shrinking, area of arable land was kept at 1.8 million mu

(around the red line) to ensure production of staple food grains – no room for cash crops.

2001 2002 2003 2004 2005 2006 2007 2008 2009 201017.80

18.00

18.20

18.40

18.60

18.80

19.00

19.20

19.40 Area of Arable Land (100 million mu)

CE/通用格式

CE/通用格式

CE/通用格式

CE/通用格式

CE/通用格式

CE/通用格式

70000

75000

80000

85000

90000

95000

Acreage of Staple Food Grains (1,000 hectares)







(2) Gap between soybean and other cash crops in terms of yield is widening; the situation is the same with rapeseed, which costs more time and energy.

Yield in Heilongjiang: Soybean vs. Corn Yield in Hubei: Wheat vs. Cole

CornSoybean

WheatCole




(3) Yield in China is obviously lower than major soybean/rapeseed exporters and is hard to improve.

Yields of Major Oilseed Producers(in tons/hectare)

ChinaU.S.BrazilArgentina

Rapeseed Yield: China vs. Canada(in tons/hectare)

Canada

China

(II) Demand for Oils and Oilseeds



1. Domestic demand for oilseeds grew by 3% in the past six years: 5-6% in 2009-2011 and zero in rest of the years. Soybean oil was the major contributor to the growth.

Consumption & Growth of Oilseeds

Palm oil

Corn oil

Sunflower seed oil

Cotton seed oil

Peanut oil

Rapeseed oil

Soybean oil

Annual growth

(in 1,000 tons)

2. Domestic demands for protein/feed climbed high in the past five years: annual growth of production reached 8.5%/8.9%. Production of meat, egg, poultry and aquatic product grew by 3%.


(II) Demand for Oils and Oilseeds

Source: Sinograin Oils Corporation, China Feed Industry Association and National Bureau of Statistics

Annual Growth of Protein, Feed and Products Production

FeedPoultry & Egg

ProteinAquatic Products

Meat

Demand grew fast since 2006, and the gap between supply and demand kept widening. Growth in import was also rapid.

(III) S&D Balance of Oils and Oilseed


S&D of Oilseeds (in 1,000t, including other oilseeds)


Beginning Stock 06/07 07/08 08/09 09/10 10/11 11/12

Soybean 5,430 3,053 6,319 11,362 16,343 16,657

Rapeseed 2,259 2,270 3,881 2,934 1,608 1,631 Total 7,722 5,357 10,234 14,330 17,980 18,317

Production (1,000t) 06/07 07/08 08/09 09/10 10/11 11/12

Soybean 15,158 14,022 16,016 14,066 15,114 14,448

Rapeseed 10,611 11,456 12,430 11,306 10,451 10,036

Total 50,818 50,079 54,322 49,705 49,728 51,347 Import 06/07 07/08 08/09 09/10 10/11 11/12

Soybean 28,726 37,815 41,085 51,096 51,778 58,793

Rapeseed 960 805 3,033 2,144 925 2,571

Total 29,845 38,872 44,421 53,450 53,295 61,644 Export 06/07 07/08 08/09 09/10 10/11 11/12

Soybean 427 453 399 182 214 238

Rapeseed 2 1 - - - -

Total 1,276 1,265 1,149 849 804 878 Ending Stock 06/07 07/08 08/09 09/10 10/11 11/12

Soybean 3,053 6,319 11,362 16,343 16,657 16,879

Rapeseed 2,270 3,881 2,934 1,608 1,631 1,603

Total 3,951 8,336 12,647 16,248 17,872 18,263

(IV) Impacts of Reserve Policy on S&DSince 2008, the government took a number of active measures to increase national reserves

of oilseeds, playing a critical role in stabilizing domestic market.

1. Purchase price increased year by year to keep the purchased volume at high levels; sufficient reserves also improved ability to regulate and control.

Source: China National Grains & Oils Information Center


Purchase Price and Volume of Soybean Reserve

Purchase Price and Volume of Rapeseed Reserve

Volume (in tons)Volume (in tons)

Price(Yuan/t)

Price(Yuan/t)

2. About Reserve Policies

China has a long history of making and implementing oils and oilseeds reserve policies, which are now pretty mature. The administration of oils and oilseeds reserve is carried out at two levels, namely the central level and the local level. The central government is responsible for central reserves, and Sinograin is incorporated for this purpose; local governments are responsible for local reserves, and governor of each province is the person in charge.

Central reserves are divided into two types: long-term reserve and interim reserve. The former is set up as an emergency response and market stabilizer; it also ensures people’s life and national food security. Sinograin ensures the freshness of long-term reserve through regular rotation. Interim reserve is set up to maintain oilseed price and farmers’ willingness to plant oilseeds; it is purchased from the farmers at the minimum price and then released to the market through auction or direct marketing.

As the reserve policies go mature and the reserves increase, the impact of the policies on oils and oilseeds market will grow stronger.


(IV) Impacts of Reserve Policies on S&D

II. Latest Development of China’s Oils and Oilseeds Industry

Contents

(I) Rapid Capacity Expansion 1. Soybean crushing capacity (1) Soybean crushing capacity grew fast, especially after 2009. Now the annual

crushing capacity has reached 100 million tons, or 300,000 tons per day. (2) Operating rate of imported soybean crushing plant is now less than 60% after

two years of declination.



Operating Rate & Capacity of Imported Soybean Crushing Plants (in 1,000t/day)

Crushing CapacityOperating Rate



(I) Rapid Capacity Expansion(3) Soybean crushing capacity are centralized in Pearl River Delta, Yangtze River Delta,

Bohai Ring Area and Shandong. Newly added capacity mainly comes from costal areas.

(4) The two key companies built or expanded their soybean/rapeseed crushing plants along the middle and upper reaches of the Yangtze River in recent years, and capacity increased to 13,000 tons/day.

Expansion of Crushing Capacity(in 1,000 tons)

Bohai RingShandongYangtze River DeltaPearl River Delta

2. Rapeseed crushing capacity

(1) China’s total rapeseed crushing capacity is 38 million tons per year, including 15 million tons of capacity newly added in recent years. Number of small- and medium-sized traditional rapeseed crushing plants is still large, but they are in a inferior position in the competition due to poor equipment and low productivity.

(2) Newly added capacity is centralized in two key areas: the middle and upper reaches of the Yangtze River, where newly built or expanded soybean/rapeseed crushing capacity is 13,000 tons/day; coastal provinces in South China, where rapeseed crushing capacity reaches 37,000 tons/day. This area mainly crushes imported oilseeds.


Newly Added Rapeseed Crushing Capacity (tons/day)

AreaNewly Added Rapeseed Crushing Capacity (tons/day)

2010 2011 2012 Total

Liaoning 1,500 1,500 1,500 4,500

Fujian 1,500 3,000 6,000 10,500

Guangdong 3,500 3,500 3,500 10,500

Guangxi 　 5,000 6,500 11,500

Total 6,500 13,000 17,500 37,000


(I) Rapid Capacity Expansion

(3) A point to note: China mainly imports rapeseed from Canada, but Canadian rapeseed crushing capacity grew fast, too. Therefore, Canadian rapeseed available for export may decrease in volume. This could be a challenge to the operating rate of new capacity added in coastal provinces. Newly Added Capacity in Canada (in tons/day)

Source: Statistics Canada

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2007/08 2008/09 2009/10 2010/11 2011/2012 2012/2013

Bunge ADM Cargill JRI Dreyfus Others



3. Palm oil fractioning capacity

China’s palm oil fractioning capacity grew quickly to 57,000 tons/day, or 20 million tons per year. Palm oil import volume maintained stable in the past five years at around 4.6 million tons, and a major part of it went directly to consumers, so overcapacity was quite common. Now China’s palm oil fractioning industry is having a tough time with unbalanced pricing system and declining margin of palm oil fractioning.

Source: Sinograin Oils Corporation, China Customs

North China, 11200

East China, 17200

Inland, 4300Shandong, 1500

South China, 23250

China’s Palm Oil Fractioning Capacity (t/d)



Palm Oil: Annual Import and Growth1,000t



4. Factors driving capacity expansion

(1) Domestic demand grew fast in the past decade(2) Active financial and monetary policies in response to the financial crisis in 2008(3) Expansion of large-sized group companies(4) Appreciation of RMB and difference in interest rates

(II) Capacity Distribution The charts below reveal two facts. Firstly, capacity distribution changed in the past three

years: foreign companies controlled 50% or above of the capacity before 2009, state-owned and private sectors took over 23% and 13 respectively; but now the share of foreign companies has dropped to around 34%, while state-owned and private sectors increased their shares to 30% or so. Secondly, size of key companies changed along with the capacity shifts.


28%

29%

30%

31%

32%

33%

34%

35%

36%

37%

外资民企国企

分类企业产能/实际进口比重

进口比重产能比重


Soybean Crushing Capacity of Key Companies

(in tons/day)

Capacity & Import Shares

Foreign Companies

Private Sector

State-owned Sector

Import share

Capacity share

(III) New Trends in Crushing Industry

1. Dependence on import increased to above 70% Growing demand and limited domestic supply boosted soybean and rapeseed

import. Oils import declined slightly at the same time.



TotalSoybean oilRapeseed oilPalm oil

Dependence on Oils Import (%) Soybean/Rapeseed Import (in 1,000t)

Palm/Rapeseed/Soybean Oils Import (in 1,000t)

RapeseedSoybean

Palm oilRapeseed oilSoybean oil



(III) New Trends in Crushing Industry 2. The crushing industry went through many difficulties in the past three years

as the margin shrank. Economic downturn, capacity expansion, unbalanced pricing system and macro control were the main contributing factors.

Crushing Margin: Spot vs. Spot ($/t)



(III) New Trends in Crushing Industry 3. Domestic soybean production available for crushing reduces. (1) A major part of China’s soybean crushing capacity comes from Heilongjiang.

Statistics shows that the province has 700-800 crushers with daily capacity above 50 tons, but less than 100 crushers with daily capacity above 500 tons. Small size, scattered distribution and large number of crushers are the key features.

(2) Imported soybean is superior to domestic supply in terms of processing quality and price, domestic soybean is loosing its competitive edges. As crushing margin declines, operating rate lingers around very low levels.

(3) Domestic demands for edible soybean and protein grows steadily, and domestic soybean will go for these demands in the future. Total demand for edible soybean exceeds 8 million tons, and more than 1.7 million tons of soybean are used to produce edible protein.

Crush Volume of Domestic Soybean (in 1,000t)

4. More and more importers are now importing oils and oilseeds. Increase import brings more uncertainties while complementing domestic supply.


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%Soybean’s Share in Total Import

0%

10%

20%

30%

40%

50%

60%

70%

Palm Oil’s Share in Total Import

(III) New Trends in Crushing Industry


III. Outlook of China’s Oils and Oilseeds Industry

报告提纲


(I) Demand for Protein/Oils Will Keep Growing but at a Lower Speed 1. China’s population growth, urbanization rate and GDP growth are unable to maintain

a high speed like before.

Source: Sinograin Oils Corporation, National Bureau of Statistics

Total Population (10,000)

Consumption of Vegetable Oils

(1,000t)Population Vegetable Oil

Urbanization Rate

Per Capita Consumption (kg/year)

GDP Growth Vegetable Oils Consumption Growth

(I) Demand for Protein/Oils Will Keep Growing but at a Lower Speed 2. Estimated average growth of protein in the next five years is 4-5%; meat and egg

drop to between 1% and 2%, about half of the average growth in the past five years.



饲料增长率蛋白增长率肉类增长率禽蛋增长率水产增长率0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%8.90%

8.50%

2.40%3.00%

4.10%

Average Growth 2007-2011

Feed Protein Meat Poultry & Egg Aquatic Products



(I) Demand for Protein/Oils Will Keep Growing but at a Lower Speed

3. Based on the 4-5% growth of the demands for feed and protein, we estimate that soybean import will grow by three to four million tons per year in the next five years.

Estimated Growth 2013-2018Soybean import

3. China’s per capita consumption of vegetable oils has exceed world average, so the demand will grow at a lower speed in the next five years.

Source: OECD



World’s Per Capita Consumption of Vegetable Oils: 2011 (kg)

South KoreaJapan

China

U.S.

E.U.

World

World’s Per Capita Consumption of Vegetable Oils: History (kg)

WorldU.S.S. Korea

E.U.China

Estimated Import Volume of Three Main Oils 2013-2018




5. 2007-2011, vegetable oil grew by 3% per year. In the next five years the growth will drop to 2%, i.e. 500,000 tons. Growing demand for protein will drive soybean import to increase by three to four million tons per year, so no need to import more vegetable oils to meet the demand.

Rapeseed oil Palm oil Soybean oil

(II) Future Trends 1. As capacity expansion slows down, operating rate will climb in the coming years.

Meanwhile overcapacity will last.



Estimated Operating Rate 2013-2018 1,000t/day

Crushing capacityOperating rate


(II) Future Trends 2. Industrial integration will continue, and more large-sized groups will take shape. 3. Crushers will keep improving the industrial chain by expanding toward upper and

lower reaches for survival and future development. 4. Cumbered by economic downturn in the western world, China’s economic growth

will slow down. Domestic demand for oils and oilseeds will grow, but at a lower speed. Overcapacity and intense competition will bring more challenges to the industry.

(III) Small- and Medium-sized Packages will Boom as Driven by Upgraded Food Safety


1. The government will tighten its control over the entire circulation process from material sourcing to end product marketing, to meet the growing demand for higher quality of life. Examples include: stricter standards will apply to transport of imported oils and product quality beginning from the next year; the government’s attempt to take down the waste oil industry in recent years. These trends will facilitate rapid development of small- and medium-sized packages. 2. Total production of edible oils in 2011 was 27.77 million tons, including 6.16 million tons of small-sized packages. Average growth since 2009 has been maintained at 10%, so the volume is expected to reach 8.8 million tons by 2015. Medium-sized packages will grow even faster because of the lower base number.

Other oilsOlive oilSesame oilSunflower seed oilCorn oilRapeseed oilPeanut oilSoybean oilBlended oilGrowth

(IV) Lasing Influence of Macro Control on Oils and Oilseeds Market

Beginning in 2008, the government implemented a number of supportive policies such as making interim reserve and increasing long-term reserve. As a result, the government’s control over oils and oilseeds market is enhanced to play a more important role in stabilizing domestic market and affecting international market. As the government refines its reserve policies, the influence on the market will last for many years. The current situation shows that the government has accumulated sufficient reserves of soybean, soybean oil and rapeseed oil. As far as macro control is considered, the government is able to prevent high market volatility from occurring. When viewing from the perspective of the oils and oilseeds industry, we should never underestimate the government’s determination and confidence in protecting farmer’s interest and preventing the price from fluctuating.


中储粮油脂有限公司SINOGRAIN OILS CORPORATION

www.sinograin.com.cn

Thank You!

www.sinograin.com.cn china’s oils and oilseeds industry situation and development prospect xue...

Documents

demand of oils

oilseeds contents

domestic oilseeds source

oilseeds industry situation

rapeseed production

oilseeds market contents

outlook of chinas oils

production growth