China's soy crushing rates hit year-to-date low in August as negative margins force run cuts

The operating rate at soybean crushing plants in China slumped to a year-to-date low of 53.5% at the start of August amid prolonged negative crush margins and replacement margins, prompting crushers to reduce soybean purchases and cut operating rates at plants, leading to a fall in soybean prices, market sources said Aug. 5

Over January-May, crushers were able to achieve positive replacement margins of Yuan 100-500/mt by selling spot cargoes of soybean meal and oil in China's domestic market, according to brokers.

However, the replacement margin for spot trading has fallen below the breakeven level since June, driven by rapid falls in soybean oil prices as rival palm oil prices fall amid increasing supply and weakening demand.

Crushing activity was further pressured by falling demand for soybean oil in China, which slumped 50% year on year in June.

The soybean replacement margin for crushers was calculated at a steep minus Yuan 48/mt (minus $7.10mt) Aug. 4, market sources said.

Platts assessed the Chinese gross crush margin for soybeans at minus $59.16/mt Aug. 4, down 49% month on month, S&P Global Commodity Insights data showed.

Crushing plants were currently operating at a loss of Yuan 450/mt ($67/mt), market sources said.

"The operation rate at our crushing plant is only 60% currently -- the rate used to be at 90% last year -- meanwhile the industry crushing operation rate would be below 60%," one Chinese crusher source said.

The operating rate at soybean crushing plants at 53.5% was down 5% month on month and the lowest to date in 2022, market sources said.

As a result, August soybean shipments to China were now expected to total 6.2 million mt, down from an initial projection of 7 million mt, market sources said.

The industry has also revised its demand projection for September to 5.5 million mt from 6 million mt earlier, with some market participants expecting only 5 million mt. As of Aug.4, only 1.5 million mt of soybeans had been purchased by China for September.

Brighter outlook

However, the oversupply situation weighing on the soybean oil market was expected to start easing gradually in August as demand for soybean oil enters a seasonally stronger period due to festival celebrations across Asia in September and October, helping to reduce soybean oil inventories at crushing plants.

"Soybean oil will recover slightly with declining inventory, however, the price will still be under pressure because the arrival volume of palm oil will be higher in the next few weeks," a Chinese crusher source said, adding: "The market believes that palm oil export and production will keep prices of vegetable oils bearish."

Sales of soybean meal have been picking up, with physical spot cargo prices rising 5.3% month on month to Yuan 4,170/mt ($618/mt) Aug. 4, supporting the replacement margin in coming weeks.

"Ten to 20 cargoes of nearby shipments will be actively traded over this week as the replacement margin is expected to be better with the lower arrival volume of imported soybean at port," a Chinese trader said.