TOKYO May 9 Marubeni Corp's exposure to soybean cargo shipments not backed by letters of credit (LC) is falling, the Japanese trading house's president said on Friday, after Chinese buyers defaulted on as many as three of its cargoes in recent months.
Chinese buyers have defaulted on at least 500,000 tonnes of soybean shipments in recent weeks -- and are threatening to default on more -- as buyers face tougher requirements to get credit from banks and weaker local demand for soymeal.
Marubeni, the top seller of grains to China, saw as many as three soybean cargoes defaulted on by Chinese buyers unable to open LCs in late March and early April this year, President Fumiya Kokubu said after a results briefing.
LCs are usually required by commodities sellers to guarantee payments from buyers, but sellers sometimes relax the requirement, particularly for established clients.
"We have about 20 late May, early June cargoes we're aiming to sell to China that have already been loaded and now are gradually having LCs opened on them ... so our exposure to (shipments) that do not have a promptly opened LC is declining," Kokubu said.
The Tokyo-based company is the biggest soybean exporter to China, shipping about 16 million tonnes a year along with Gavilon, which it bought last year, or about a quarter of the country's annual imports of 60 million tonnes.
Marubeni spent $3.6 billion to buy the grain trader Gavilion last year in hopes of using the U.S. company to help procure supplies for in China, already the world's largest food consumer, where it expects demand to continue growing.
"Looking at China's overall soybean imports, while there might be times when crushing margins become bad, over the mid-to-long term its impossible for me to envision a decline in demand," Kokubu added.
Marubeni expects to post 220 billion yen ($2.17 billion) in net profit for the financial year ending in March 2015, slightly below the 226.8 billion yen mean estimate of 13 analysts surveyed by Thomson Reuters I/B/E/S.
Net profit for the 12 months ended on March 31 surged 62 percent to 210.9 billion yen, mainly due profit rises in its energy and overseas sectors.