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Revival in China crush margins lifts Wilmar profits

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Wilmar International underlined the improved soybean processing margins for China's crushers as the edible oils giant unveiled an 11-fold rise in profits from its oilseeds division – more than offsetting a drop in palm oil takings.

The Singapore-based group, which counts US-based Archers Daniels Midland among major shareholders, revealed a 49% jump to $309.9m in earnings for the January-to-March quarter, despite a drop to 8.3% to $9.41bn in revenues.

The increase reflected a jump to $166.1m in pre-tax profits at its oilseeds and grains division, up from $13.6m the year before, lifted by raised margins for its important Chinese oilseed processing operations.

A year before, Wilmar's crushing plants faced a collapse in margins thanks to imports by groups such as Sunrise Group and Shandong Changhua Food, which said to be using soybeans as a financing tool.

The ample supplies, in meaning strong supplies of products too, depressed margins at oilseed processors, before a financing clampdown altered the dynamics

'No market distortion'

Wilmar said: "Crushing margins improved due to lower soybean imports into China by financial traders and lower soybean prices," which were depressed by strong world supply prospects.

The comments echo those from US rival Bunge, which said last week that "China is a very different place, from a crush margin perspective, this year than it was last year.

"Margins in China have rebounded sharply," Soren Schroder, the Bunge chief executive, told investors.

"This time last year we were looking at negative gross margins in China, and now really for the balance of the year, we're looking at margins that are in the $30-plus range, so covering full cost plus some.

"Financial players are essentially out of the picture, so there doesn't seem to be any market distortion as we saw last year."

Margins to remain positive

Kuok Khoon Hong, the Wilmar chairman and chief executive, added that "crush margins are expected to remain positive going into mid-2015".

However, he cautioned that operating conditions in the tropical oils division, centred largely around palm oil, "will remain challenging".

In the January-to-March quarter, the division reported a 44% slide to $152.1m in pre-tax profits as weak palm oil prices, and the dent to Malaysian plantations from "hard weather conditions", hurt production revenues.

Palm oil overcapacity, sugar languishes

Meanwhile, industry "overcapacity" prevented tropical oil refining operations from exploiting the weaker raw material costs.

Nonetheless, "we believe that we will be able to overcome the current difficult environment, especially if the Indonesia government implements its proposed support policy for biodiesel".

Indonesia this week signed off on a fresh $50-a-tonne export tax on crude palm oil, designed to raise funds for encouraging use of the vegetable oil by biofuels groups.

The group's sugar business continued to languish, reporting a pretax loss of $68.0m, compared with $54m in the first quarter of 2014.

Sugar prices are in a slump thanks to global oversupply, wiping out Wilmar's increased sugar sales volumes in the quarter.


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