Edible oil prices are set to go up in China following the surge in the prices of imported soybean from the US, reflecting how domestic prices are dependent on external factors.

Most of the major edible oil processing companies have announced plans to raise the prices, according to media reports. Yihai Kerry Group, the country's largest edible oil processing company, will increase the price of its products, including the leading brand Arawana, by 10 percent, according to the Beijing News.

People with the company were quoted as saying that the company is under growing pressure as raw material prices have gone up by over 10 percent in the recent weeks.

The company did not respond to inquiries yesterday, but analysts said edible oil prices are indeed increasing in the domestic market due to the high cost of raw materials in the international market.

Soybean futures in the international market have been on the uptrend in the last two months. They rallied to the highest levels in over seven months on May 14, when the May soybean contract rose 12.5 cents to US$11.50 a bushel on the Chicago Board of Trade, and the most-active July soybean contract climbed 10.5 cents to US$11.28.

The price increase is largely due to fears of a shortage in supplies this year. The shrinking forecasts for Argentina's soy crop due to a damaging drought are expected to keep world importers looking to the US for soy supplies.

That has led to an increase in cost for domestic oil processing companies as over 80 percent of China's imported soybeans are from the US. The domestic output of soybeans was 16.5 million tons in 2008, and it imported over 37.4 million tons from the US, a record high in history, according to Customs figures.

China imported over 10 million tons of soybeans during the first quarter of 2009, up 30.4 percent over same period last year. Over 80 percent of the imported soybean, or 8.41 million tons, are from the US, up by 44.4 percent.

"We are getting too dependent on the soybean imported from the US. Therefore any price change there will influence the domestic market," said Wang Xiaoyu, a soy products analyst based in the northeastern Heilongjiang province.

Zhu Tingju, who owns a small edible processing business in Shandong province, said the oil prices have risen during the past weeks. The US market prices play an important role in the domestic oil market. The Chicago Board of Trade is the first thing we look at in the morning," said Zhu.

Edible oil prices were in the limelight when it surged to a historic high last year, mainly due to inflation and rising raw material prices. Some people even stocked several bottles of oil at home for reserves. But analysts say a price surge like that is very unlikely now.

"The price change has a lot to do with the macro economic situation," said Zhang Jianwei, analyst, Haitong Futures. "The price surge last year was mainly due to short supply and inflation, but that will not happen this year."

Wang said the government's policy could also be part of the reason for the price increase. The government has been purchasing soybeans from the market at a price much higher than the market price, according to Wang. He said the government is doing this to protect the interests of domestic peasants and encourage them to keep planting. It purchased about 5.53 million tons of soybeans from the domestic market this year.

Wang said the price increase could be good news for the producers in the southern part of the country, who purchased large volumes of soybean when the price was low.

(China Daily May 19, 2009)