Will the negative soybean processing margins in China affect Wilmar?

Its Oilseed & Grains pretax margin could average 1.9% this year.

It was reported that soybean processing margins in China are currently negative, prompted by precipitous declines in soybean oil prices. Will this affect Wilmar's Oilseeds & Grains pretax margins?

According to DBS Vickers Securities, historically, spot margin calculations had no direct correlation with Wilmar’s Oilseeds & Grains pretax margins. The brokerage firm said calculations have at times moved in opposite directions because of three reasons.

For starters, unlike spot prices, Wilmar’s feedstock costs and end-product selling prices are secured months ahead through back-to-back hedging.

DBS Vickers Securities said Wilmar may also opt to increase or reduce its crushing volumes relative to other industry players, depending on anticipated profitability levels.

It added, "Wilmar’s Oilseeds & Grains pretax also contain contributions from Consumer Pack segment, which typically does not move in tandem with crush margins."

With these in mind, the brokerage firm said Wilmar’s Oilseed & Grains pretax margin could average 1.9% this year, up from 1.4% last year.

As for what’s happening in China, DBS said the drop in soybean oil prices was mainly driven by higher vegetable oil imports; regular auctions of state rapeseed oil reserves; and unwinding of speculative long positions in edible oil futures on the Dalian exchange.

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