BEIJING: China's latest measures to limit corn processing expansion, a key driver of booming consumption of the grain, is not expected to dampen demand by the world's second largest consumer, although it could cut profits for many large players in the sector, industry officials said on Friday.
Key names in the industry include Global Bio-chem, the world's largest supplier of lysine, Xiwang Sugar, the top glucose producer, Fufeng Group, the largest MSG producer, and China Starch.
The National Development and Reform Commission, the country's top planning body, this week issued an industry restructuring plan which restricts construction of new corn starch plants with annual capacity of up to 300,000 tonnes.
"These measures would slow down construction of new projects obviously," Wang Licai, vice chairman of the China Starch Association, told Reuters.
While the policy may help big mills take over smaller ones, demand for their end products as well as for corn generally will remain unchanged, said Wang.
He sees Chinese demand for corn starch, which is processed into products such as corn sweetener and modified starch, growing 10 percent annually, although China's own supply will only grow at half that rate, creating a need for imported corn.
Corn use by starch and alcohol makers could grow at least 10 percent annually until 2015, he said. For 2011, such growth is in line with a forecast by the China National Grain and Oils Information Centre (CNGOIC), which expects China to consume 5 million tonnes more, totalling 50 million tonnes in 2010/2011.
In addition, CNGOIC forecasts demand for animal feed will rise by 6 million tonnes to 105 million tonnes in 2010/2011.
China Starch said last year it planned to double its corn starch capacity to 1.65 million tonnes by 2012. And traders said Lenovo, a Chinese computer maker, is also planning to invest in corn starch to try to profit from high domestic sugar prices.
In 2007, Beijing began to limit new corn processing projects amid concerns that China would not be able to meet demand from the booming industry while ensuring supplies for animal feed.
The government wanted to limit processors to 26 percent of total corn consumption, but that rate passed 30 percent last year. China will no more corn surpluses, vice agriculture minister Wei Chao'an said late last year.
Talk last month that tight government stocks might drive China back to the import market helped drive up Chicago corn prices to a record high of $7.83-3/4 on April 11.
China's state reserves have tried to buy at least 9 million tonnes since late last year, when some large processors were ordered to make way for state reserves to buy first, traders said.
And this year again, Beijing moved to control use by corn processors after inflation rose to the highest in 32 months and corn stocks at state reserves dwindled to the lowest in years.
The finance ministry last week abolished a value-added tax refund for the industry in buying corn from farmers and said no new loans would be offered for the industry to buy corn from farmers.
"These measures could add costs and squeeze margins for corn processors in the second quarter, but demand for corn sweetener and other products remain robust, which would not curb corn demand from the industry," said one industry analyst in Hong Kong, who follows one of the listed processors.
Some corn processors contacted by Reuters said they can easily pass rising costs on to their customers and actually the prices of starch and alcohol had already jumped this week.
"Our local governments have a shared interest with us. Who is going to come and restrict our development?" said one official at a processor in Shandong province, the hub of the sector, when asked if the company had any borrowing problems.
Other processors said they can always borrow money to buy corn by using the loans for buying equipment or other items.
"Whenever there is a supply problem, the government took measures to restrict the industry, but they cannot solve the key issue of supply," said one executive from a corn processor.
After the rumours about China buying corn last month and demand for ethanol and feed drained US corn stocks, CBOT corn, with cost & freight, is now about $60 a tonne more expensive than Dalian May corn.
But traders said China's quarantine bureau was in talks with Argentina, which may open the door for imports if Chinese supplies dry up and cause a spike in prices.
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