Chemical tankers and bulkers get unexpected bonus from US-China trade war

Deal for up to 400,000 tonnes per year of soybean oil could be followed by soil meal

New long-haul vegoil and soybean trades are likely to emerge for chemical tankers and bulkers after Argentina signed a soybean oil export deal with China.

Last week China agreed to buy 300,000 to 400,000 tonnes per year of soybean oil from Argentina. The agreement was signed during Chinese President Xi Jinping's state visit to the South American country.

Santiago del Solar, chief of staff to Argentina’s agriculture secretary, told media on Tuesday that exports of soybean oil will begin once Argentina starts harvesting its soy crop in March. It would be worth $185m to $250m per year, based on current prices.

Argentina has exported on average about 120,000 tonnes of soybean oil to China on an annual basis over the past three years.

This news is positive for IMO 2-type chemical tankers, which would be used to carry the 400,000 tonnes of soyoil from Argentina to China.

While Argentinean hopes to also sell soymeal livestock feed to China did not pan out, del Solar indicated that if China does not re-establish soybean imports from the US, it is possible it will come back to Argentina to talk about importing soymeal.

China has been increasingly looking towards South America for its soy needs after it slapped a 25% tariff on imports from the US, which was one of its biggest suppliers until the trade war broke out between the two countries earlier this year.

China has always preferred to import whole soybeans from Brazil and the US, and then crush them in domestic crushers to produce soyoil and soymeal.

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Chinese customs data indicates that the country imported 93.95 million tonnes in the 2017/2018 marketing year.

During the first ten months of this year Brazil’s share of Chinese imports increased from 46.% to 56.6% while US share decreased from 22% to 16.6% and is expected to drop more steeply in the upcoming months as China continues to shun US soybeans.

Even though Brazil is expected to harvest a record soybean crop in the 2018/2019 season as good weather and strong Chinese demand set farmers on course to produce a new bumper crop, it still can’t satisfy all of China’s import requirements. One alternative solution is to get them from Argentina.

Argentina traditionally dislikes exporting whole soybeans, preferring to crush them at home and export the soyoil and soymeal. The twist here though is that Argentina is still suffering from last year’s poor crop last year, and has been importing whole soybeans from the US to keep its crushers in operation.

Reuters reports that 43 supramax and ultramax bulkers loaded with US have sailed for Argentina since July . Bloomberg describes Argentina as having become the US’s largest soybean buyer.

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Ralph Leszczynski, Ban­chero Costa’s head of research notes that Argentine soybean exports to China fell to just 1.2 million tonnes between January and October 2018 this year, compared to 5.3 million tonnes during the same period in 2017

However, Bloomberg reported this week that Argentina has begun to ramp up shipments of domestically produced soybeans to China as importers there are paying higher prices than what Argentinean crushing mills are paying for discounted US soybeans.

Dry-bulk brokers indicate that Argentine soybean exports to China are also being shipped predominantly on supramax and ultramax bulkers, some of which arrived in the South American country loaded with US soybeans.

Leszczynski describes this US-Argentina-China triangulation as being a good example of how tariffs can sometimes create inefficiencies which can be positive for shipping tonne miles.