Leading Chinese crushers warn about fierce competition hurting profits

Intensifying competition among Chinese crushers is slashing profitability in the sector and leaving half of the potential production capacity idled by poor margins, representatives of two leading Chinese crushers have told delegates at a forum in Dalian, Thursday. 

“China’s soybean crushing industry is seeing intense competition, with the annual [crush] capacity reaching between 190 million mt and 200 million mt,” Li Feng, Assistant Director of a business unit at the major Chinese crusher, Yihai Kerry, said during the forum.

But the actual crushed volume is only around 95 million mt, or around half of that capacity, he said.

Meanwhile, the ever fiercer competition among crushers has driven up prices for imported soybeans, while also cutting prices for finished products like soyoil and soymeal - leading the sector into negative crush margins, he said. 

China's crushing capacity is also highly concentrated in a handful of players, with the top 10 crushers accounting for roughly 80% of overall crush volume, according to Li.

“Our crushing industry needs to self-discipline, and not to engage in too heated competition,” he said.

Luo Yonggen, the chairman of another top Chinese soybean crusher, Jiusan Group, expressed similar views at a separate keynote speech at the forum on Thursday.

Chinese crushers, including state-owned, private and foreign firms, have been expanding capacity in the past years, with daily crushing capacity reaching 482,000 mt as of September and it is expected to rise further to 500,000 mt next year, said Luo.

“But with the expansion of capacity, the utilization rate has been lower than 60% in the last three years, meaning around 40% of that capacity has been wasted,” he said.

As crushing capacity is expected to expand further, industry competition will become even more fierce and make it harder for crushers to gain spot sales profits, he said.

While bumper harvests of soybeans in South Amercian have pushed down soymeal prices, the product's percentage could increase in feed products; but considering the reduction of overcapacity in China's feed industry, the growth of soymeal demand is still going to be limited, he added.