Marubeni Corp. (8002) is insisting Chinese buyers open letters of credit before it ships soybean cargoes to the world’s top importing nation amid a slump in demand, Chief Executive Officer Fumiya Kokubu said.
This year some small- and mid-scale Chinese importers were slow to open letters of credit, a trade document that ensures the seller will be paid on delivery, Kokubu told investors and analysts in Tokyo today. The buyers’ financial situation began to improve from mid-April and Marubeni is working to make sure it obtains letters of credit for all 20 of its latest China-bound cargos, according to Kokubu.
Stricter lending rules at Chinese banks and a drop in the profit margins of soybean processors eroded Chinese demand for the oilseed. Crushing margins were the “worst ever” in the first three months and will remain negative until July, Kuok Khoon Hong, chief executive officer at Wilmar International (WIL), which supplies half of China’s cooking oil, told reporters in Singapore on May 9.
The Chinese drop in soybean demand is probably temporary, Kokubu said, denying a May 11 Reuters report that said Marubeni offered to ship soybeans for a deposit instead of letters of credit to expand quickly in China.
“We don’t ship cargoes if letters of credit are not opened,” Kokubu said. If the buyer in the end doesn’t open a letter of credit Marubeni tries to find alternative sales routes, he said.
Japan’s biggest agricultural trader increased its exposure to Chinese food demand by acquiring U.S. grain merchandizer Gavilon Holdings LLC last year for $2.7 billion. China’s anti-trust watchdog approved the purchase on condition that Gavilon and Marubeni maintain separate grain trading desks for Chinese sales to foster greater competition.
The delays from Chinese buyers in opening letters of credit aren’t connected with the Japanese trader’s ownership of Gavilon because the U.S. unit does not sell directly to China, Kokubu said.
Profit from Marubeni’s grain trading, outside of Gavilon, may decline to 10 billion yen ($98 million) in the year ending March 31, from 12 billion yen last year, Kokubu said. Gavilon profit will probably be unchanged at 15 billion yen, he forecast.
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