Last year, due to the African Swine Fever (ASF) outbreak, crushing activities, especially soybean crushing, had experienced a negative growth for the first time in history. In general, China’s soybean crushing capacity has been growing rapidly since the late 1990s as a result of various policies implemented by Chinese government in anticipation of the ballooning demand for animal feed in the country.
According to various market data released by crushers and few research firms across the country, the daily soybean crushing capacity in 2019 has reached a pharaonic 465,000 MT per day of which approximately 418,000 MT daily capacity crushes of imported soybean. Based on 335 days of operation of the crushing facilities, the yearly crushing volume has potential to reach around 155.8 million MT per annum . However, the total volume of soybean crushed last year was only around 90.0 million MT (during the peak), or utilised half of the capacity installed.
This excess capacity situation had caused stiff competition among the crushers leading to negative crushing margins from time to time in the past several years. This resulted in severe restructuring of the soybean crushing industry. Many small independent crushers were unable to withstand the volatility in the sector, had to wind up their businesses. Subsequently, this market sector was consolidated comprising around 10 to15 major groups of companies which had garnered the control of most crushing capacity in the country. It is also because of this consolidation that the market witnesses a surge of capital flow from these major players to expand their capacities further, to gain bigger pieces of market share particularly in new potential areas.
Table 1 – Daily Crushing Capacity by Group of Companies in 2019
Source: Jiusan Group
The chart above shows that the soybean crushing activity is expected to increase further in tandem with the soybean crushing activities expansion by the major market players. In another word, China will be hungrier to import more soybean to make sure that the crushing capacity is being utilised as much as possible.
While the wheel of expansion keeps its accelerative momentum, the location of the crushing plants may shift from south and coastal regions of China to the northern region. This is attributed to the fact that Chinese government has put in policies and support measures since 2018 to encourage the setup of big-scale animal husbandry in the northern region. This encouragement for the government will see more animal feed producer’s growth in that region. So a sensible decision for the crushers is also to have their crushing plants being set up closer to their animal feed producers. This action can be clearly interpreted from Table 2. Liaoning and Sichuan were the only 2 provinces that saw an increase in capacities as their shares of soybean crushing shored up in 2019.
Table 2- Annual Crushing Capacity in 2019 – Top 15 Provinces or Cities
|Province/City||Crushing Capacity(‘000)||Share (%)||Changes of Share against 2018|
The shifting focus on the location of new soybean crushing plants and other oilseeds crushing plants is expected to encourage higher oils & fats production growth rate. This eventually will create rooms for the imported oils such as palm to satisfy the demand in the south region. This is deduced due to the relocation of soybean oil plants from inland or northern areas, which will make the transportation of the oil to the south more costly, compared to importing palm oil based products. Furthermore, palm oil could be used for a longer period in a year in the southern region. This will favour higher palm oil import by the southern region.
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