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Wilmar profits halve as China soy margins collapse
The collapse in Chinese soybean processing margins, which have sparked import order cancellations and sapped world prices of the oilseed, drove a halving in earnings at Wilmar International, driving its crushing business into a loss.

The group, with Noble and Olam International one of the "Now" group of big Singapore agricultural trading houses, revealed earnings of $162.8m, down from $327.4m a year before.

Excluding non-operating items, earnings dropped 32% to $214.6m.

The decline reflected in part a quadrupling to $54.0m in pre-tax losses on sugar, a sector in which Wilmar has continued to expand this year, through a joint venture in Myanmar and the purchase of a stake in India's Shree Renuka Sugars, to add to assets in Australia and Indonesia.

Losses rose both in milling, thanks to "negative timing effects" on sugar hedges, as well as marketing and processing, hit by lower Indonesian refining margins.

'Difficult operating environment'

However, the biggest setback was in the group's oilseeds and grains processing division, which slumped to a pre-tax loss of $57.4m, from a $47.2m profit a year before.

Although the division's sales rose 8.7% to $3.36bn, boosted by extra capacity in flour milling, the group highlighted a "difficult operating environment" in soybeans, where results were undermined by "very poor" crush margins in China.

Indeed, "crush margin was negative", a reflection of "oversupply caused by the arrival in China of previously delayed soybean imports on top of the normal course shipments, and lower demand for soymeal from bird flu and slower economy in China".

Kuok Khoon Hong, the Wilmar chief executive, and a member of the Malaysian family which controls the group, said that "current crushing conditions in China are tough".

Surfeit of soybeans

The comments come amid a period of jitters in international markets over China's poor crush margins, pegged by Morgan Stanley at about a negative 50 yuan per tonne of soybeans compared with a positive 150 yuan per tonne in the autumn,

The poor margins are said to have prompted many crushers to default on orders, and provoked tougher credit conditions which have only added to ideas of cancelled imports, particularly from Brazil, and an uptick in supplies available for other buyers.

China on Thursday said that its imports last month hit 6.5m tonnes, up from 4.62m tonnes last month, and a gain of 64% year on year.

Ideas of ample supplies have also been spurred by rumours of the country selling soybeans from state reserves a move confirmed on Thursday by the National Grain and Oil Trade Centre, which said that 300,000 tonnes of the oilseed would be sold next week from government inventories.

'Not sustainable'

However, Mr Kuok was sanguine on prospects for Chinese soybean processors saying that the difficult conditions "are not sustainable long term".

Consolidation that stems from the sector downturn "will ultimately benefit us", he said.

Wilmar has a strong record of takeovers in sectors other than sugar, with the group currently attempting, with Hong Kong investment firm First Pacific, the takeover of Australia's Goodman Fielder, the food group behind Wonder White bread and Meadowlea spread.

Soren Schroder, head of oilseed processing rival Bunge, last week flagged signs already of revival in China's soybean processing sector.

Double edged sword

Wilmar also revealed a decline in performance at its palm and laurics division, where pre-tax profits dropped 26% to $162.0m, dented by the higher prices of raw materials such as palm oil.

But the revival in palm oil prices during the quarter helped the group's plantations division lift pre-tax profits by 53% to $110.4m, with lower fertilizer costs and a rise in production providing extra boosts.

Indeed, the group revealed a rise of 11% to 4,900 tonnes per hectare in its palm production yields, in part down to an improved age profile of trees in Sabah, but also a "better crop trend", underlining the improved prospects voiced by Indonesian industry figures earlier this week.

Mr Kuok forecast that "lower palm refining margins will continue to be alleviated by improved plantation earnings, as well as continually strong contributions from high margin palm and lauric products", such as oleochemicals and biodiesel".

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