China holds up soy cargoes in possible trade backlash

By Nao Nakanishi

HONG KONG (Reuters) - Beijing has tightened checks of soy arriving from the United States and Argentina, possibly in a trade backlash, prompting fears the oilseed cargoes might be stranded yet again costing millions of dollars.

Industry officials and traders said the quarantine authorities (CIQ) were inspecting soybeans more thoroughly than before, delaying discharges of U.S. and Argentine cargoes, though none was yet rejected.

Some buyers had to put the soy into a warehouse and wait for an approval before crushing the beans as CIQ had found phytosanitary problems, such as mixtures of weeds, they said.

"Obviously inspections have been quite tight recently," said a senior trader at an international house in Beijing.

"It is taking a longer time to get inspected and discharged. It is unpleasant ... We have to see how things develop from here. If it stabilizes or things would get worse, we are not sure. It depends on the political situation."

No Brazilian cargoes had yet faced difficulties because few were arriving from the origin at present.

Last week, the quarantine authorities said it would strengthen its supervision over soy imports to ensure the quality and safety. They had found numerous quality problems in soy imported from the United States.

It came as Chinese exports are under international scrutiny over qualities following massive U.S. recalls toy made in China.

The CIQ note hit raw nerves of the soy industry, which lost hundreds of millions of dollars in 2004 when CIQ turned down many soy cargoes from Brazil due to what it called quality problems.

"I hope they don't do anything serious," said an executive at a crushing plant in southern China. "It cost a lot of money in 2004 and we are just now recovering from it."

With such uncertainties, Chinese buyers have slowed down soy purchases despite a pick-up in demand, also due to soaring freight rates pushing up costs for soy imports.

The traders said soy premiums, including costs and freights, stood at 260-270 cents per bushel for November shipment, compared with about 130 cents early this year.

High freight costs, which have more than doubled since start of the year to records of more than $100 a ton, also mean sky-high demurrage payment, if the ships were not allowed to unload the cargoes in time.

"This is a political problem. It is a warning by the Chinese government to the United States not to damage the Chinese image," said another senior trader at an international house.

"But overall I don't think Beijing will really curb the imports. China needs it. And after the disaster of 2004, they've realized it was just waste of money for both buyers and sellers."