At least four South American soya cargoes are stranded at ports in China as financially embarrassed crushers have failed to pay for high-priced beans, traders and industry sources said.
The world's top buyer of soya also suspended imports of Brazil soyabeans from two suppliers after discovering a second cargo tainted by fungicide, the country's quarantine bureau said on Monday - after imposing a similar ban on four others this month.
Louis-Dreyfus Asia and Archer Daniels Midland Co's Brazil unit joined Cargill, Noble and two Brazilian firms - Irmaos Trevisan S/A-IND. Com. E Agricultura and Bianchini S/A Industria Comercio E Agricultura - in being banned from selling Brazilian soyabeans to China, the bureau said.
Monday's move comes as Brazilian President Luiz Inacio Lula da Silva visits Beijing and could stoke worries that the mainland quarantine bureau may turn away still more soyabean cargoes from the South American country.
"In order to safeguard the health of Chinese consumers, we have decided to suspend shipments from Louis Dreyfus Asia Pte Ltd and ADM Do Brasil Ltda," the bureau said in a statement on its Web site (www.aqsiq.gov.cn).
Traders and industry sources said Chinese crushers struggling with payments for high-priced soyabeans would not be unhappy if cargoes ran foul of quarantine problems since that would give them cause to avoid paying full price on purchases.
"Chinese crushers actually hope for such things to happen," one industry source said.
The southern province of Guangdong rejected one cargo from Brazil after it said it found red soyabeans sprayed with fungicide - to be used only as seeds - mixed with the shipment, the bureau said on Monday.
That followed the discovery of fungicide in another cargo in the south-eastern port city of Xiamen, which led to the original suspension imposed on four suppliers.
Many Chinese crushers might have no choice but to default on soya cargoes arriving in China as Chicago futures, freight rates and domestic soyameal prices had fallen sharply since the contracts were sealed, they added.
"Many crushers have financial problems. Every customer is trying to solve the problem. But the market is very weak. All of us face a tough mission," said a senior trader at an international house.
Traders said Chinese domestic soyameal prices fell further to below 3,000 yuan per tonne, aggravating difficulties by Chinese crushers, which had been hit by Beijing's monetary tightening following months of negative crushing margins.
With Chicago futures and freight rates retreating from multi-year highs, the traders said, South American soyabeans would cost only about $340-$350 per tonne, C&F China today, compared with about $430 for those arriving currently.
It was not immediately clear how many cargoes were stranded at ports. Yet one industry source in Beijing counted at least four at the northern port of Lianyungang.
"It's very, very serious," said another trader at an international house. "Everything arriving right now has problems."
Asked if Chinese crushers could afford to default on the contracts and risk seriously damaging their reputation, the industry source said: "Maybe they feel it might be okay if they all do it together. It is likely to happen."
The source calculated it would cost a buyer about $1 million to default on a cargo, while the costs would surge to $3-4 million if he or she opted for cancellations or wash-out (sell-back to the supplier at a fee).
"If things do not improve for another month or two, 10-20 percent of the Chinese crushers would go bankrupt," the source said, adding that the only salvation was for Chinese soyameal prices and Chicago futures to go up.
Yet some were hopeful Chinese soyameal prices might recover in the near future as feed mills had been destocking. Domestic demand for animal feed should see some seasonal recovery after a downturn due to bird flu early this year.
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