Here's how Wilmar will be plagued by China's economic slowdown

Its latest JV didn't bring good news.

According to OCBC Investment Research, Wilmar international Limited has just announced that it has received the relevant merger clearances for the establishment of a 50-50 JV called “the global amines company” with Clariant International Ltd (CIL), a world leader in Specialty Chemicals.

The JV – headquartered in Singapore - will be the global platform for production and sales of fatty amines and selected amines derivatives; it will also seek significant growth opportunities in the markets of Industrial Home Care and Personal Care.

However, DBS noted that WIL’s share price did not show any positive reaction to the news. Instead, sentiments were likely depressed by continued concerns over the slowing economy in China.

Here's more:

The latest economic data on Tuesday showed that the producer price index (PPI) has remained in deflationary territory for 16 consecutive months, falling 2.7% YoY in Jun following a fall of 2.9% in May.

PPI has been falling since Feb 2012 on the back of weaker commodity prices, overcapacity and falling demand. On the other hand, consumer price index (CPI) climbed 2.7% in Jun, driven up by rising food prices. While CPI was still below the central bank’s 3.5% target for 2013, further rises could lead to China imposing price caps on essential food items like cooking oil.

While WIL put in a pretty decent 1Q13 showing, where core earnings met 23.6% of our FY13 forecast, 2Q could be quite muted. WIL had previously guided for crushing margins in China to ease in 2Q13 now that a large quantity of beans has arrived in China as the port congestion in Brazil has cleared.

Furthermore, lower sugar prices are expected to weigh on its sugar operations.