Tag Archives: Argentina

China’s Soybean Importers Threaten More Defaults

CHINA’S SOYBEAN IMPORTERS are hardening their line on defaulting on contracted shipments in an attempt to force down prices in face of burgeoning stockpiles and slowing demand. China is the world’s biggest buyer of soybeans, accounting for three-ffiths of global imports. The main use for the beans is to be crushed into meal to make poultry feed. Demand for feed has fallen by an estimated 15% following last year’s outbreaks of bird ‘flu.

Since late February Chinese importers have cancelled 1 million metric tons of orders from the U.S. and South America, particularly from Brazil, though to put that in context, China imports 70 million metric tons a year. In the Chicago commodities futures markets, soybean prices have risen by more than 14% this year.

Trading firms mostly clustered in Shandong province have refused to make payments for about 20 shipments, Shao Guorui, general manager of Shandong Sunrise Group, reportedly says. Chinese buyers face losses of as much as $7 million dollars on each shipment, he adds. The crushing companies they sell onto are suffering, too, with around half the industry’s capacity idle because of over-expansion. 

Sunrise accounts for one-eighth of China’s soybean imports. It is part of Shandong Chenxi Group Co., run by Shao’s multi-millionaire brother Zhongyi.

The issue could flare up into a trade dispute with Japan.  Shandong buyers have 80 to 100 cargoes booked for delivery from the Japanese trading giant, Marubeni, through July. Marubeni accounts for a quarter of China’s soybean imports. “Marubeni is deluded in thinking that payments will come once the cargoes have sailed,” an unidentified industry executive based in Shandong was quoted as saying.

 

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Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

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CNOOC Extends China’s South America Reach

BP’s $7 billion sale at the end of last month of its 60% stake Pan American Energy to its partner Bridas which owns the other 40%, means CNOOC ends up with 50% of the oil and gas company that operates mainly in Argentina — and China takes another large step in the acquisition of energy interests in the region.

Since March, when CNOOC, China’s third-largest oil company, bought into Bridas for $3.1 billion, Bridas has been a 50-50 joint venture between the state-owned company and the Argentine owners of Bridas Corp., the well-connected Bulgheroni family who run a vertically integrated energy group that is the second-largest oil and gas producer in the country and have business connections to Central Asia.

BP may have been a forced seller, given its need to fill a war chest for any  obligations arising from the Deepwater Horizon disaster in the Gulf of Mexico; CNOOC either got a fine price this time or overpaid for its stake last March.

In the short term, CNOOC’s investment, which represents China’s second largest overseas M&A deal of the year, may give it access to the local market but long term the focus will be on exports. The question is how that will fit with the Argentine government’s policy to favor the domestic market over exports.

Update: State Grid, the world’s largest power utility, is buying seven Brazilian power distributors in a $1 billion deal. It has also won a 30-year concession to operate the power distribution system in densely populated southeastern Brazil — further evidence that Chinese companies see good business in the growth prospects of South America’s largest economies.

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China And Argentina Still Stuck Over Soy

A country as vast as Argentina is ripe for high-speed rail travel and indeed intercity rail services are undergoing something of a revival there after years of underinvestment. That makes it a ripe export market for China’s burgeoning rail engineering industry.

Argentina look set to buy some $10 billion of Chinese trains and associated rail equipment for both passenger and freight services. China Development Bank is providing a ten-year 273 million dollar loan to be used to buy Chinese high-speed trains from China Northern Locomotive & Rolling Stock Industry.

It was one of a bunch of deals signed during Argentine President Cristina Fernandez de Kirchner’s just concluded visit at the head of a large trade delegation. It may turn out to be one of the main achievements. Little progress was made on the biggest issue between the two countries, China’s restrictions on the import of Argentine soya products imposed in April on the grounds that chemical residues had been found in some shipments of soya oil, although the action may just be retaliation for Argentine efforts to block imports of Chinese products on anti-dumping grounds and for the President’s last minute cancellation of a state visit to Beijing in January.

China spends some $2 billion a year buying  more than two-thirds of Argentina’s soya exports and is the South American country’s third largest trading partner. Suspension of the trade is serious for Buenos Aires which is relying on a rebound in agricultural sales to spur economic recovery and generate the export taxes needed to get its public finances back in some sort of order. A bilateral commission is to be set up to resolve trade differences, but details remain sketchy.

On his trip to South America in April, President Hu Jintao skipped Argentina between stops in neighbors Brazil and Chile. If the two countries can sort out their trade spat, the next time a Chinese president makes a similar journey he might well be able not just to visit Argentina but to do so in a Chinese built train.

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Filed under China-Latin America, Trade