Wilmar takes hit as China welcomes Argentina soybean meal imports

Lower cost soy meal alternatives threatens its domestic crushing business.

China's move to allow imports of cheaper soybean meal from Argentina is expected to weigh on Wilmar International's domestic soybean crushing capacity, according to an analyst report from Maybank Kim Eng.

The policy change by Chinese authorities is aimed to lower domestic input costs whilst avoiding US imports due to the trade war, as wholesale pork prices skyrocketed 57% since June due to an African Swine Flu outbreak. Soybean crush margins bounced bank to negative after a brief recovery in August amidst the outbreak.

According to US Department of Agriculture (USDA) data, Wilmar’s installed capacity is 39 million MT/year, nearly a fifth of China’s total crushing capacity. Its oilseeds and grains segment also delivers almost 50% of group revenues.

"The magnitude of the impact will depend on import quotas and when full regulatory clearances are received – the timing of which is unclear so far," Maybank KE analyst Thilan Wickramasinghe wrote. The first Argentinian soymeal is estimated to arrive by Q1 2020.

On the upside, as this move may potentially limit soybean oil supply, buyers eye palm oil as an alternative and could boost import figures from 80% YoY in August.

Also read: Wilmar's tropical oil and sugar segments could boost Q3 earnings

"Wilmar’s integrated tropical oils segment given their upstream exposure, scale and end-to-end supply chain should benefit from this trend, in our view," Wickramasinghe added.