Despite the carrot of a potential exemption from import tariffs, Chinese soybean crushers are unlikely to buy in bulk from the United States any time soon as they grapple with poor margins and longer-term doubts about Sino-US trade relations, people familiar with the matter said.
China imposed a 25% tariff on US soy imports last year as Washington-Beijing trade disagreements boiled over into tit-for-tat levies on each other's goods. That blow was felt on both sides of the Pacific: China was the top buyer of US soybeans.
A warming of relations led to hopes in the soy trade that the situation might improve: After talks last month, US President Donald Trump said he had agreed not to impose new tariffs on Chinese goods - if China purchased more US agricultural products.
An Apparent Goodwill
There have been no signs of US soybean sales to China in recent weeks, but in an apparent goodwill gesture Chinese officials briefed private importers last Friday on a plan to boost them, according to three people familiar with the matter. These and other people interviewed by Reuters on the subject declined to be named due to the sensitivity of the issue.
According to one of the sources, a group of five crushers were told by China's state planner that they could apply for exemptions from the 25% tariffs on some US soybean cargoes arriving before the end of December.
The source said the group included Yihai Kerry, owned by Singapore-based Wilmar International, state-owned Jiusan Group, and privately owned Shandong Bohi Industry Co, Hopefull Grain & Oil, and China Sea Grains & Oils Industry.
But even without the extra tariffs, US soybeans could not compete with Brazilian supplies on price until at least October, based on current premiums and margins, according to six traders and analysts surveyed by Reuters, making immediate orders unlikely.
"It is hard to see buying of large US shipments (for delivery to China) for the time being," said Li Qiang, chief analyst with Shanghai JC Intelligence Co Ltd.
China's National Development and Reform Commission, the state planning agency that organised the Friday meeting, did not respond to a fax seeking comment.
Yihai Kerry, Jiusan, Bohi declined to comment, while China Sea could not be reached for comment. A staff in the public relations department at Hopefull and a manager from the company's international trade division said they were not aware of the matter.
Beijing's new plan came after Chinese state firms COFCO and Sinograin bought around 14 million tonnes of US soybeans following a truce agreed by leaders of the two countries last December.
Each of the five crushers asked to take part in the new plan was given a quota separately, with the total volume of this batch of extra tariff-free imports estimated at around 2-3 million tonnes, according to one person with knowledge of the plan.
Earlier this week US Agriculture Secretary Sonny Perdue said China had commitments to buy 20 million tonnes of soybeans, though he did not specify a timeframe.
"Some of that materialised but not enough and we hold them accountable for that," Perdue said. "I think the latest numbers I saw this week, we were up to 13.67 (million tonnes) if I recall correctly, so they still have a ways to go."
For the whole of 2018, China imported 16.6 million tonnes of soybeans from the United States - about half of 2017's 32.9 million tonnes - as the tariffs on American cargoes cut into buying.
But China's demand for soybeans crushed into livestock feed has also decreased dramatically in recent months as African Swine Fever swept across the country, resulting in the death or culling of millions of pigs.
While COFCO and Sinograin bought US soybeans on government orders, the Chinese sources said, the five private importers at the meeting make buying decisions based on commercial interests - mainly crush margins - which don't favour immediate buying.
Data shows crushers in Rizhao, a major hub for soybean imports in northern China, currently lose 133 yuan ($19.33) for every tonne of the oilseed they process.
"We are not in shortage of beans for August and September, but it is hard to say about future months," said a manager at a crusher eligible for the tariff exemptions, who spoke on condition of anonymity.
China's next steps on US soybean imports remain unclear, but any large volume of purchases will likely be tied to the US lifting sanctions on Chinese tech giant Huawei Technologies , two analysts suggested.
"How many US soybeans China will buy, and for how long, depends on how much the US will adjust its policies on companies like Huawei," said Li, the Shanghai JC Intelligence analyst.
Washington banned American companies from selling most US parts and components to Huawei without special licences, citing national security concerns.
But Trump said last month that sales could resume as he sought to restart trade talks with Beijing.
The Trump administration said on Wednesday that it plans to handle applications from tech companies seeking waivers over Huawei blacklisting within the next few weeks.