China Agri-Industries unveiled a return to half-year profit,
helped by "market intelligence" and Chinese ag subsidy changes and trade
clampdowns – although it cautioned over the lapse of one tailwind, on state
support corn processing.
The Hong Kong-listed group - a subsidiary of Cofco, the Chinese
state-owned ag trading giant – revealed earnings of HK$1.21bn for the January-to-June
period, a sharp improvement on the HK$292.3m loss reported a year before.
Revenues rose 9.0% at HK$44.43bn, "as a result of price
recoveries in oilseeds products and fuel ethanol".
And the oilseeds processing division, which returned to the
black, and the biochemical and biofuels division, which saw operating profits jump
five-fold to HK$753.6m, were behind a jump in group operating profits too.
The group said "market intelligence" had helped its oilseeds
processing division report a profit of HK$425.6m, compared with a HK$404.0m
loss a year before, with traders making timely decisions on oilseed purchases and
sales of crushing products.
Against a backdrop of rising Chinese soybean imports and
crushing capacity - and a "slow recovery of the domestic livestock feed
industry [which] kept a cap on" prices of processing products - "profit margin
for the industry narrowed from the peak level at the beginning of the year",
the group said.
However, China Agri-Industries said that, "anticipating" the
market conditions, it "accelerated the signing and execution of contracts while
the market was still favourable.
"Both measures helped to support the bottom line."
The group also supported by margins by raising capacity
utilisation, reporting a 1.5% rise to 3.66m tonnes in sales of oilseed meals,
and a 6.2% increase to 1.82m tonnes in volumes of vegetable oils.
The biochemical and biofuels division, meanwhile, was helped
to a jump to HK$753.6m in operating profits, from HK$153.7m a year before, by the
market impact of a series of Chinese subsidy and trade reforms.
An end to the country's guaranteed corn scheme, which has
undermined market values, meant that "cost pressure was eased for processors"
of the grain.
Meanwhile, China Agri-Industries flagged "increased demand"
for corn-based sweeteners, against a backdrop of hefty tariffs introduced in
May on out-of-quota sugar imports.
And, thanks a reduction in imports of distillers' grains
(DDGs), after Beijing slapped large tariffs on purchases of the corn-based feed
ingredient, from the US, as well as improved oil prices, "the biofuel business
was able to scale up and improve profitability", the group said.
DDGs are manufactured as a byproduct of making ethanol – a
commodity on which China has also raised duties this year, removing a
preferential import tax for US and Brazilian shipments and reverting to a normal
rate of 30%.
But China Agri-Industries flagged a setback to its outlook
from the loss of one fillip, with the "expiration of government grants for corn
processing", which Beijing introduced, alongside farm subsidy reforms, to encourage
erosion of the country's huge corn stockpile built up through the guaranteed
The group also said that "challenges will remain in price
fluctuations in the oilseeds market".
However, it also flagged a boost to its prospects from a
strategy of expanding into consumer food products from the less specialist
markets it has historically focused on.
"As the domestic consumption is becoming more important as
major growth driver, agricultural products will continue to see more demands for
high-end products featuring nutrition, health, flavour and functional
"Price sensitivity will play a less important role in consumer
decisions, signalling new growth opportunities for added value and
China Agri-Industries shares closed up 0.9% at HK$3.52.