“Marubeni [the world’s largest soybean exporter to China] is deluded in thinking that payments will come once the cargoes have sailed,” is the message from an increasing number of liquidity-strapped Chinese firms, “If they take these cargoes, some could go bankrupt. That’s why they choose not to honor the contracts.” As we explained in great detail here, this is the transmission mechanism by which China’s commodity-financing catastrophe spreads contagiously to the rest of the world. A glance at the Baltic Dry is one indication of the global nature of the problem (and Genco Shipping’s $1 billion bankruptcy), but as Reuters reports, “If buyers cannot resolve the issue, they may also cancel future shipments.”
Reuters notes that China’s soybean imports in the first quarter jumped 33.5 percent, a record for the quarter and industry sources see a rush of cargoes in the second quarter. The rise comes amid an increasing use of soybeans in financing trades to secure credit.
Traders estimate more than 10 million tonnes of soybeans, out of China’s imports of 63.4 million tonnes last year, are imported for financing annually.
And the lack of liquidity and forced losses means China’s buyers ain’t paying…
Chinese buyers may default on a further 1.2 million metric tons (1.32 million tons) of soybeans worth about $900 million being shipped from the United States and South America, to avoid incurring huge losses in a depressed local market, the country’s top soy buyer said.
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Honoring these deals would cause Chinese buyers to incur a loss of as much as $7 million per shipment,
“If they take these cargoes, some could go bankrupt. That’s why they choose not to honor the contracts,” Shao said.
Of course, this odd ‘beggars are choosers’ almost monopoly of buying pressure dry-up means Chinese buyers can play hard-ball…
