The Relaxation of Restrictions on New Corn Further Processing Projects Possibly Would Aggravate Overcapacity

By CnAgri2017-04-26 10:44:47 Print

In September 2016 (before new corn availability on the market), temporary corn stocks reached 230 million MT, higher than the domestic demand; corn stocks only stopped increasing by taking the measures such as cancellation of temporary reserves, the guidance in a drop in planting areas in the northeast and the rewards to feed and further processing companies because of purchasing new corn. Especially, 50 million MT of corn put in temporary depots in 2013 had been exceeded the time limit, so the quality drops obviously and the difficulty on digestion is huge. Corn further processing industrial chain is relatively long, which has huge consumption for corn and low requirements on quality of raw materials. At the current phase, the government cuts down the entry barrier to corn further processing sector, in order to relieve the pressure of oversupply, especially speed up to digest corn stocks.

However, China’s corn further processing capacity has been surplus. In recent years, along with a continuous loss and a relatively low operating rate, corn starch and alcohol processing companies are at the phases of capacity cutting-down and industrial consolidation. Thanks to a drop in corn costs, an increase in demand and favorable policies, the whole corn further processing sector made a profit in 2016. Even so, some companies still fell into loss. According to statistics, the average processing margin of scaled corn starch companies recorded RMB 72/MT in 2016 and the companies with good performance made a profit of RMB 143/MT, but the loss of some companies reached RMB 198/MT, highest.

The relaxation of restrictions on corn further processing sector must result in a rapid increase in corn further processing capacity in the next several years. Although the changes in policy can temporarily solve the problem of huge stocks, yet, along with the contradiction between supply and demand relieving, the problem of overcapacity would reappear, as well as market saturation, an increase in corn costs and a shock on exporting, so the companies would generally fall into the loss and the sector would enter a new round of shuffling.