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China Oil Spill Grain Impact ‘Minimal’ on Stockpiles, Rerouting

July 20 (Bloomberg) -- China’s grain market will be well supplied from inventories and rerouting of shipments as the clean-up of the Dalian oil spill keeps the port closed for as many as 10 days, said an analyst at Shanghai JC Intelligence Co.

“The Beiliang port near the explosion site was closed due to traffic restrictions but cargoes can be rerouted to other ports nearby with grain handling facilities such as Bayuquan, Yingkou and Jinzhou,” said Tommy Xiao by phone from Shanghai.

A clean-up operation is underway off the coast of northeastern China’s Dalian city after pipelines exploded on July 16 near the city’s oil reserve base, one of China’s largest, the official Xinhua News reported. China’s grain market may be “slightly affected,” the China National Grain & Oils Information Center said today.

“The clean-up process might take up to 10 days and then the operation at the Dalian port should be back to normal from what we heard,” Xiao said.

China’s internal corn trade, shipping the grain from the northern corn belt in Jilin, Liaoning, Heilongjiang and Inner Mongolia, to the main consuming areas in the south, will be unaffected because of rerouting, Xiao said.

Still, “if Dalian is closed for an extended period of time, China may find that importing corn from abroad is a more practical way of having corn delivered to southern China,” Commodore Research said by e-mail from New York-based President Jeffrey Landsberg. “Dalian has one of the best infrastructures to deal with transporting bulk grain to southern China, especially from Jilin, one of China’s largest corn producing provinces.”

Net Imports

The country, the second-largest corn consumer, is forecast by the U.S. Department of Agriculture to import 1 million tons in the year ending Sept. 30, up from 47,000 tons a year earlier. China will likely remain a net importer of the grain for a second year as bad weather has hurt the domestic harvest, Bank of America-Merrill Lynch said July 14.

Ports in the Southern China such as Shekou in Guangdong province are also expecting arrivals of U.S. corn shipments which China bought previously, Shanghai JC’s Xiao said.

A dark-brown oil slick has stretched over at least 183 square kilometers of ocean near blast-hit Xingang port, with 50 square kilometers severely affected, according to Xinhua. Workers and fishermen using oil-spill dispersant and absorption felts have been operating and have collected some of the spill.

Port Closed

An incorrect procedure during the offloading of a tanker may have led an explosion that damaged two pipelines and spilled oil into the Yellow Sea, PetroChina Co., spokesman Mao Zefeng said yesterday. The cause is yet to be confirmed and an investigation is under way, he said. The port was closed after the blasts, said an official at one of PetroChina’s two refineries at Dalian, who can’t be identified because he isn’t authorized to speak to the media.

“We estimate that Dalian port has more than 400,000 metric tons of soybean inventories, enough to satisfy the local crushers for at least half a month,” Xiao said. “The crushers also keep sufficient inventories at hand so their operations won’t be affected unless the clean-up process is prolonged.”

There are three main soybean crushing plants near Dalian - owned by Nissin, Jiusan and Wilmar, respectively, that use a combined 15,000 tons of raw material a day, he said.

Impact Minimal

“Those cargoes that have arrived but are waiting for unloading might get delayed, but the impact on market prices and trade is minimal so far,” he said.

The ocean traffic control may delay the offloading of two-to-three cargoes of soybeans, Feng Lichen, a manager at Yigu Information Consulting Ltd., said yesterday. The shipments were scheduled to be offloaded at the Beiliang Port in Dalian, Feng said, without saying who owned the cargoes.

“In my view the oil spill and explosion will have little effect on agricultural markets,” Feng said.

Shanghai-based Shanghai JC Intelligence is an agricultural consulting company.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net

To contact the editor responsible for this story: Jim Poole at jpoole4@bloomberg.net

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