The prospects of China to import sunflower meal can reach 1 mln tonnes – the opinions of the market participants

Source

APK-Inform

3536

Sunflower meal is a new product for the Chinese consumers and what is most important – it does not contain the GMO. This season the share of Ukrainian product export to China after the signing of the protocol of the requirements for the export of meal has increased significantly. The current trends on the meal market were the topic of our interview with the representatives of both the Chinese and Ukrainian companies.

The opinion of the Chinese side was expressed by one of the leading Chinese companies – Sinopharm. On behalf of the sellers the APK-Inform has talked to the Ukrainian companies that are TOP-3 of the sunflower meal exporters to China in 2017/18 MY and to the companies that last month received a permission to export the product to China in 2018/19 MY.

For convenience we have blocked the opinions of the buyers and sellers as follows:

  • Demand
  • Consumption
  • Logistics and Quality
  • Prospects
  • Permission to export to China
  • Expansion of the import geography in China

 

China: opinions of buyers

Andrei Grischenko, the head of the oilseeds

department of Sinopharm

  

 

Demand

Of course now sunflower meal is highly demanded on the Chinese market. Owing to the trade war China is actively searching the alternative ways to receive the commodity group of high protein level. If we speak about sunflower meal Ukraine will become the main partner for China. Because the export capacity of the Ukrainian meal for the current season is 4.6 mln tonnes that will allow to cover the demand in China.

Herewith, according to the Chinese agency of statistics China has the high stocks of soybeans and soy meal (up to date: 6.6 mln tonnes of soybeans and 1.21 mln tonnes of soybean meal) but we expect the demand on the Ukrainian sunflower meal to reach 1 mln tonnes in the new season.

 

Consumption

Sunflower meal is usually used as the raw material for the feeds and the large livestock farms have its own production capacities. Thus, both the farms and the feeds manufacturers can be the consumers of meal.

Sunflower meal does not have some unique features in comparison with soybean or rapeseed meal. But it has an important advantage such as low price.

The first Chinese companies that started to use sunflower meal were the manufacturers of the feeds for fish. Earlier Chinese processors used rapeseed meal from Canada (Canola Meal) but the Ukrainian sunflower meal had similar quality including protein, fat, moisture etc. The only difference was the higher content of cellulose (up to 20% in sunflower meal in comparison with 6% in rapeseeds meal). But the high content of cellulose can negatively affect some group of animals, for example, led to the slow growth, thus the technologist should always take into account the acceptable share of the products in diet. At the same time, the high rate of cellulose does not affect some groups of fish, thus the Chinese farmers started to use sunflower meal as a cheaper equivalent of the Canadian rapeseed meal. Now there are different opinions regarding the appropriate price of the Ukrainian sunflower meal towards the Canadian. Some believe that the prices must be equal, but until now Chinese consumers suppose that sunflower meal should be cheaper by approximately 300 yuan/t, than the rapeseed meal.

Later, hog and poultry farms started to use sunflower meal.

It should be noted that Ukraine usually uses sunflower meal for the production of feed for the livestock, the content of meal in the feed formula can reach 60%! But the Chinese livestock producers currently are not interested in purchasing the meal. They use lucerne, but we are doing our best to change the situation.

 

Logistics and quality

The date of expiry of sunflower meal according to the technical specifications in many countries last for 6 months. Thus the 1-month delivery time is an easy job. The maximum period needed to produce sunflower meal and deliver it to the Chinese consumer is 3-4 months: 1 month at the warehouse in Ukraine; 1 months – shipment to port and storage or dispatch to the cargo; 1.5 months to delivery by sea and 0.5 month to deliver the goods to the consumer. Usually, this rout takes even less time. Thus there is 2 month left free. And taking into account that sunflower meal is not included to the list of the products of the food security of China it is not stocked at the governmental seaport warehouses but is sold right away. But even if the date of expiry of sunflower meal is over it does not mean it cannot be used as for feed. It only means that the feed value might theoretically decline (protein utilization).

The more serious problem is the mold development of the product during the shipping. Many heard that the significant part of sunflower meal was delivered to China with mold. The reason of this is the neglecting of the elementary rules of the loading.

 

Prospects

If we speak about the plans of our company, this season we are going to buy 150 thsd tonnes of sunflower meal for the Chinese market.

China has all the opportunities to import 1 mln tonnes of meal as the total capacity of the accredited plants is more than 360 thsd tonnes per month. But the issue of prices remains to be the most important. First, who will pay more – Belarus, the EU or China? Second, is the question of sunflower meal price competitiveness towards soybean and rapeseed meal prices. As sunflower meal is first off all is the product-substitute.

 

Expansion of the import geography in China

If we speak about the geography of the importers in China, despite the negotiations with Russia and Kazakhstan nobody knows for sure the results, even the large companies such as Sinopharm. The same situation is in Ukraine.

However, if the geography to widen in the nearest future it would not have a strong impact on the market. The export potential of Kazakhstan is 50 thsd tonnes per year, Russia – 1.1 mln tonnes. Herewith, 50% of the export will be delivered to Turkey, nearly 7% - to Egypt and the rest to the EU. There is doubt that anything lefts for China.

 

Ukraine: opinion of the sellers

 

Tatiana Genkina, trader of meal of the company

LLP “Delta Vilmar CIS”

 

 

In November of 2017 LLP “Delta Velmar CIS” received a permission to export sunflower meal to China and was the first company to export the containerized cargo of 0.5 thsd tonnes in December of 2017. The share of the company’s export of meal to China is 29% of the total shipping of meal.

 

Permission to export to China

As you know our company was one of the first that received the permission to export Ukrainian sunflower meal to China and at that moment nobody believed that China will open its market for the Ukrainian product. Thus, when the first list was announced, everyone started to actively deliver its cargo to the country that was ready to pay the premium. It is not surprise, that the processors that were not permitted to export goods to China set a goal to receive a permission. With the time the permission was granted to 24 companies.

The market of China is very prospective for Ukrainian sunflower meal. I would not say that we had many problems while exporting meal to China but I would say that being the first exporter we had many questions regarding the documents.

 

Logistics and quality

Ukrainian sunflower meal is quite successfully shipped to the Asian countries and the only problem that Ukrainian companies could face was the development of mold. However, experience shows that this problem can be avoided using the cooling systems and holding the balance of moisture and temperature of both meal and inside the container. In terms of quality there should not be any source of concern.

 

Price trends

If we speak about the price trends on the market of sunflower meal in the Q1 of 2018 it should be noted that Ukraine did not face such prices long before but, it would be wrong to connect with the demand from China. I believe that the main factor that affected the prices was weather, in particular, the low production of soybeans in Argentina due drought. There is also a demand from the EU, Belarus and the domestic consumption that led to the price increase.

It is hard to evaluate the single product as Ukrainian sunflower meal is considered in China as a substitution for rapeseed meal, and taking into account the trade was with the US sunflower meal is the perfect replacement of both rapeseeds and soybean meal. Of course we cannot exclude the competition on the supply market and its influence on the price formation, but we should not underestimate the possibilities of China to consume sunflower meal. At the same time, it would be wrong to think that the prices will start to decline due to the increased supply for export to China.

 

Prospects

According to the official statistics China imported nearly 150 thsd tonnes of sunflower meal for the last half year. Taking into account the fact that Chinese importers successfully purchase our meal, the prospects of the import increase depends on those companies that can start buying the products in terms of the trade war with the US. I would estimate the potential volume of sunflower meal export to China at 800 thsd tonnes in 2018/19 MY which can increase further. At the same time the Chinses importers evaluate the import import of meal at 3.5 mln tonnes in order to partially compensate the lack of soybeans supply from the US.

If we speak about our company “Delta Vilmar CIS” we plan to increase the export volumes, especially since we are the leaders of soybean processing in China and supply for the domestic market soybean, rapeseed and now also sunflower meal. We plan to preserve the share of our company on the market at the level of 30%.

 

Expansion of the import geography in China

I believe that it is logical move for China in order to demonstrate its independence from the supply of American soybeans. Moreover, I suppose that Russia and Kazakhstan continue trying to gain the alternative distribution channel.

 

Sergey Rudchenko, the director of the Melitopol oil extraction plant

 

In November 2017 Melitopol oil extraction plant received a permission to export sunflower meal to China. The company’s share of the total supply volume to China is 7%.

Permission to export to China

In 2015 we become interested in shipping meal to China and at the same year the AQSIQ of China visited out plant to perform an inspection. It was almost 2 years before we receive the governmental permission. The potential of the Chinese market is huge; the consumption of the foods products is constantly increasing thus the use of feeds is growing too.

If we speak about the Ukrainian market of sunflower meal, today the domestic demand is rather moderate. Many consumers have stocked enough meal for the summer period when the majority of the oil extraction plants stop for reconstruction. Now we sell the meal on the domestic market and on the market of Belarus and Poland. During 2017/18 MY we have sold the finished products to the domestic market (32%), Belarus (24%), China (28%), other countries (16%).

 

Logistics and quality

The first two containers to China were shipped in December of 2017. The rout takes nearly 1 month and there is high risk that the quality of meal might deteriorate. But the result depends on the quality of the product, the moisture level. But in general I can note that the buyer did not have any concerns towards our product.

 

Prospects

The volumes of sunflower meal export from Ukraine to China will grow due to the increase of the feed use for the livestock and fish. Moreover, the Chinese government is aiming at decreasing of the soybean meal consumption via its substitution by other high protein ingredients. In 2018/19 MY we plan to export nearly 30% of the produced product.

 

The expert of the large trading company, TOP-3 of Ukrainian sunflower meal export volumes to China

 

Demand

Everyone knows that AQSIQ published the first lists of the confirmed Ukrainian producers of sunflower meal by the end of November only but the protocol was signed in September 12. The first volumes that our company shipped were smaller than we previously expected (in December we exported nearly 3500 tonnes). The reason is the Chinese consumer that is not ready to accept the changes.

Thus the biggest obstacle for us was to present the product to Chinese consumers. I would like to point out that while being in Beijing and in Shanghai in June in 2018 I met with the largest Chinese holdings-consumers of feed products and it appeared that at the time they never used sunflower meal as a feed for their animals.

 

Prices trends

If we speak about the difficulties on the Ukrainian market it is first of all the drastic growth of prices. After China started to buy sunflower meal, even with small quantities (in the period December of 2017 – June of 2018 China imported nearly 170 thsd tonnes of sunflower meal) there was a supply deficit on the market and the prices started to increase. Moreover, the drought in Argentina, being the largest exported of meal, also supported the prices.

In particular, in December the price of meal in terms of CFR to China was 235 USd/t, in February it increased to 265 USD/t, and in May – 310 USD/t. As a result many traders defaulted the contracts.

 

Logistics

For the moment there are two ways of shipping the product to China – in bulk and by containers. And the shipping in bulk has some difficulties. In particular, if earlier the biggest ships loaded by meal were 25`000 tonnes (it was not popular), but in order to receive the profit in terms of the shipping to China the ships must be loaded by the volumes reaching 45`000-60`000 tonnes. And this is hard to impellent in Ukrainian ports (especially in terms of meal).

The shipping in containers has a good advantage. The cost of the containerized delivery does not depend on the distance. The volume of the reverse shipping is more important. Thus, owing to China exporting many products to Ukraine the export shipping in containers is offered at reasonable prices.

 

Prospects

By the end of the current season the permission to export sunflower meal to China was given to 24 Ukrainian companies. But I do not think that this will result in the increase of the supply of the product for the export to China and consequently to the price decline. The wider list of the companies was published at the end of June of 2018 but the prices never decreased, despite the hopes of Chinese importers. At that moment the China was not ready to pay higher premium thus could not compete with the EU or Vietnam, or Thailand.

But I am convinced that this season we should not expect the same marginality in terms of trade with China. This is reasonable as the wider market becomes the smaller prices they have.

In terms of price there is a question who will be a market-maker: China, Belarus or the EU? China is a closed country from the point of inner information. Even the large Chinese governmental traders do not know the real stocks of the product in China. Thus, the question remains open: will China have the alternative of the import due to the trade war with the US.

 

 

Yuriy Shevchenko, the development director of LLP “UkrOliya”

 

 

 

The company received the permission to export sunflower meal to China in July of 2018.

 

Permission to export to China

We spent more than 6 months to receive the permission to export sunflower meal to China. During this time there were gaps in communication and no chance to control the deadline. The oil extraction plant “UKROILYAPRODUCT” received its permission during the second round of certification. The Ukrainian side (SSFUSFCP) inspected the plant and sent the results to the Chinese side with the confirmation that the enterprise fully confirms the requirements.

The Chinese market is large and highly prospective. We are interested in the new possibilities to expand the distribution geography and in finding new buyers. Due to the entering the Chinese market the prices in Ukraine for sunflower meal increased.

 

Logistics and quality

Taking into account the rout from Ukraine to China the upper layer of the product can be damaged. Thus, during the shipping we use additional measures in order to avoid the quality worsening. First of all, it is necessary to abide the temperature control, the speed of loading, the requirements to the containers, etc.

The Chinese market is complicated. The speed of the export is limited by several factors. In particular, the Chinese side requires the special accreditation of the production capacities, additional quality analysis, additional packages of documents accompanying goods. And taking into account that the Ukrainian exported entered the Chinese market in January of 2017 only, they study the market capacity, its development and conversion from soybean to sunflower meal, the databases of the end buyers.

 

Prospects

For the current moment the main buyers of Ukrainian meal are the producers of feed formulas, hog farms, poultry and dairy farms. 70% of the product is distributed in Ukraine and 30% is exported to Poland and some Asian countries.

Our company plans to export sunflower meal to China and now we are holding the negotiations with the Chinese companies.

We have all the necessary permissions to export sunflower meal to China and the quality of our product corresponds the requirements. Also, we have the capacity to load the product in containers at the plant and provide the shipping to China.

 

Natalia Pavlenko, the trader of the international trade of “Allseeds”

The company received the official permission to export sunflower meal to China in July of 2018

 

Permission to export to China

By the end of October of 2017 we have undergone all the inspection to receive the right to export sunflower meal to China and we were waiting for more than 6 months for the publication of the permission.

The interest to work on the Chinese market was generated by the high market capacity and potential, but we should wait and see what will be the prices. The Chinese market has huge demand thus they can by all of the mea produced in Ukraine. The main factor that limits the export of Ukrainian meal is the prices declared by the Chinese buyers.

 

Logistics

If we speak about the infrastructure and the logistical expenditures, the profitability of sunflower meal export to China will depend on the bid prices. The plant Allseeds is at the territory of the Sea Commercial Ports of Yuzhny and in terms of shipping in large cargoes our company has the most advantageous position. In particular, we have the capacity to load 100-200 thsd tonnes of the product thus reducing the expenditures.

 

Prospects

In 2017/18 MY our company exported 90% of meal produced to the EU countries, which demonstrates the good reputation and quality of our products. But if in 2018/19 MY the bid prices of meal export to China will be attractive enough, we will prefer the Chinese market more.

 

Interview by Viktoria Zelenaya

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