* Importers default on at least 10 soy shipments -sources
* Buyers face problems getting credit for cargoes
* Processors losing $80-$100/T crushing beans
* Raises spectre of more cargo defaults
(Adds comment, detail)
By Naveen Thukral and Niu Shuping
SINGAPORE/BEIJING, April 10 Chinese importers
have defaulted on at least 500,000 tonnes of U.S. and Brazilian
soybean cargoes worth around $300 million, the biggest in a
decade, as buyers struggle to get credit amid losses in
Three companies in the eastern province of Shandong had
defaulted on payments for shipments as they were unable to open
letters of credit with banks, trade sources said on Thursday.
A string of defaults on loans, bonds and shadow banking
products in recent weeks has highlighted rising credit risks in
China, partly fuelled by signs the economy is slowing.
Commodity firms, along with semiconductor and software
companies, are among the most at risk of credit defaults, a
Reuters analysis of more than 2,600 Chinese companies showed.
Up against the cooling economy and signs that authorities
will not step in every time a loan goes bad, Chinese banks are
becoming more hard-nosed and selective about whom they lend to.
"There are five to six (panamax) cargoes which are unable to
be unloaded at ports because buyers cannot open LCs (letters of
credit) and there are no LCs for an additional 5-6 cargoes
floating on the sea," one Beijing-based source said. Each
panamax cargo is for 50,000 to 60,000 tonnes.
Defaults by buyers in China, which imports 60 percent of the
soybeans traded in the world, would likely cap a rally in global
prices as they coincide with bumper supplies from Brazil and
Argentina hitting the market.
Chicago Board of Trade front-month soybeans edged
lower on Thursday after climbing to their highest since July in
the last session when the U.S. Department of Agriculture cut its
forecast for stocks remaining at the end of the crop year.
"The reality is that the world is reliant on Chinese imports
of soybeans to maintain this price strength," said Luke Mathews,
commodities strategist at Commonwealth Bank of Australia in
"It is putting a question mark on the sustainability of
The default on 500,000 tonnes of soybeans is the biggest
since 2004, when buyers walked away from an estimated 30
contracts, resulting in a loss of close to $700 million, traders
Industry sources said some of the companies defaulting have
been using soybean imports to secure cheap financing, with
interest rates on letters of credit as low as 2 percent and
allowing delayed payment of several months.
Having imported large amounts, some of them even sell the
oilseed at a loss, as a way to liquidate their stocks and plough
cash into more profitable businesses.
Fearing a wave of defaults as China's economy cools after
decades of rapid growth, regulators in the past two years told
banks to cut off financing to sectors plagued by excess capacity
such as steel and cement.
Exporters, in a bid to gain a foothold in the lucrative
Chinese market, sometimes ship cargoes when importers do not
have confirmed letters of credit, trusting buyers will honour
their commitment. The practice was briefly abandoned after the
wave of defaults in 2004 but slowly resumed.
With negative processing margins and tightening credit,
sources said there could be more defaults on cargoes of
soybeans, crushed to make cooking oil and animal feed ingredient
"More ships are coming in, but given the big losses banks
are not risking opening LCs for those trading firms," said a
senior company executive whose firm has faced rejections in
getting letters of credit from banks. "It is really an
earthquake for the industry."
Crushers are losing 500-600 yuan ($81-$97) for processing a
tonne of soybeans, compared with a 600 yuan profit in the fourth
quarter of last year during peak consumption and when some
shipments were delayed.
The fat margin in the fourth quarter prompted China to
purchase 27.7 million tonnes of U.S soy so far in the current
marketing year to August, 2014. China bought a total of 21
million tonnes of U.S. soybeans the year before.
China imported 15.35 million tonnes of the oilseed in the
first quarter, up 33.5 percent on a year earlier, according to
official Customs data issued on Thursday.
"Crushers are making big losses while downstream product
meal is not selling very well," said an official at a body,
which oversees soybean imports under the commerce ministry.
Imports could fall below 15 million tonnes in the third
quarter from 18.25 million in the same period last year, traders
and industry officials said.
"If you crush beans in China today you lose $80-$100 a
tonne," said a Singapore-based senior executive with a global
trading company that has processing facilities in China.
"This is really discouraging people from buying beans and we
expect the real impact will be felt in the third quarter."
Demand for soymeal has been hit by outbreaks of bird flu,
cutting appetite by as much as 20 to 30 percent in the
February-March period, analysts said. Pig farmers have also
reduced purchases as they trim herds due to oversupplied pork
(Editing by Joseph Radford and Amran Abocar)