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COFCO setting up soybean processing plant in Guangxi

By Hou Qingyang (皇冠体育app Daily)
Updated: 2009-08-19 08:04

Chinese edible oil firms may open more plants this year. [CFP]

皇冠体育app National Cereals, Oils & Foodstuffs Corporation (COFCO), the country's largest oil and food producer, is planning to build a soybean-processing plant in South 皇冠体育app's Guangxi Zhuang autonomous region with a capacity of 1.2 million tons a year.

Sources familiar with the 1.85-billion-yuan project said construction is likely to start in September in Qinzhou, in the Beibu Gulf economic zone.

This is the second big soybean-processing factory built by COFCO. In April it opened a 4-billion-yuan oil-pressing project in Tianjin.

皇冠体育app's major edible oil producers, including Sinograin Oils & Fats Industrial Co and Jilin Grain Group, have also lined up plans to open new factories to boost capacity.

Overcapacity in the soybean-processing industry has become a chronic problem, distorting normal trading prices, Liu Denggao, deputy secretary-general of the 皇冠体育app Soybean Industry Association, told 皇冠体育app Business News.

To curb overcapacity in soybean oil production, the National Development and Reform Commission issued guidelines in August last year which have been ignored by the producers, said Liu.

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In spite of the increased competition and narrowing profit margins, there are still incentives driving soybean oil manufacturers to expand, according to analysts.

Technical entrance criteria for the industry is still low and so are labor costs, said Wu Xiaodan, analyst, Everbright Securities.

Soybean and oil prices are experiencing a downward adjustment because of the global financial crisis, but the "demand elasticity" of oils is limited as consumers still need oil to cook, said Wu.

Almost all the new factories are located at seaports, allowing the easy delivery of cheap, imported genetically engineered soybeans for sale to both domestic and overseas markets.

"Overcapacity is a paradoxical topic now," said a sales manager of COFCO who declined to be named. "There are still potential markets for packaged refined oils in small cities and towns where many people are still using raw oils."

Per-capita edible oil consumption is 14.5 kg a year in 皇冠体育app.