Company, local regulators to face probe over recent covid outbreak
In November, Dalian had an outbreak of covid that led to a total of 317 cases along with the city shutting down for mass testing. The initial outbreak was traced to a facility that handled imported cold chain products which led to the government briefly halting movement in cold chain products.
Dalian is a major port for many products including grain, coal, oil, and containers, but is also a major hub for the global coal chain and this shutdown was disruptive. Since the beginning of the pandemic, Dalian has had 2 previous small clusters of cases that were also linked to the virus surviving on imported cold chain products.
At this point all the workers are supposed to be full vaccinated and boosted, wear full PPE, and get tested daily. This raises the question of how this happened a 3rd time. There was a recent meeting of Dalian’s covid prevention team and officials didn’t pull any punches. They said “Preliminary investigations showed that this was a case of cold chain enterprises breaking the law and concealing the truth, relevant agencies engaged in fraud, perfunctory responsibilities and supervisors were seriously negligent in their duties. Contaminated cold chain food was imported and infected Dalian Keqiang Food Co., Ltd. at the first stop.”
China wants to continue to maintain its zero-covid policy, but there is always a risk that companies or local regulators cut corners to save time or money.
Additional context: China is a major seafood processing center. Ministry of Ag said that in 2018 there were 9,336 processing facility in the country with a capacity of 28.9 million tons and according to the USDA’s Foreign Agriculture Service (FAS) “China continues to be the world’s processing hub for mackerel, salmon, cod, and herring.” In their 2020 report, FAS also notes that Qingdao and Dalian are the two primary arrival ports for seafood and that Liaoning province (where Dalian is located) is one of the major seafood processing provinces in the country. This means that the spread of the omicron variant could disrupt global seafood and aquaculture trade if China needs to further tighten controls.
Disruption of rail, truck shipment on north Chinese borders see no short-term relief
China continued to report more domestically transmitted covid cases in northern provinces of Inner Mongolia forcing local authorities to block transportations of energy and agricultural goods across the border.
Market sources expect the blockade to remain until the number of new cases return to zero, and land transportation is expected to remain blocked in the short term.
“Manzhouli and Suifenhe ceased operations with any kind of cargo except containers in transit,” said one Russia-based trader at a major export company.
Despite Russian agricultural products account for only a small fraction of China’s total agricultural imports globally, the value reached more than $3 billion in recent years, growing more than 15% in the past five years.
Physical market update: China snaps up Australian wheat, Ukraine corn as domestic price remains high
Chinese buyers were said to have bought 6-7 cargoes of 2021/22 new crop Ukrainian corn and barley this week. They also checked US corn prices but no trades were reported.
China also purchased at least two cargoes Australian wheat late Thursday though the exact specs were uncertain. These purchases were made against the backdrop of strong domestic corn and wheat prices in China.
The most liquid corn futures contract on Dalian Commodity Exchange continued to trade at the highest level in six months as of this Friday.
In soybean market, the USDA reported 130,000 mt of 2021/22 soybeans were sold to China on Thursday.
Live hog futures on the Dalian exchange continued to fall today.
After rallying from contract lows in October, prices spent all of November trading in a sideways channel. Prices fell this week and traded to their lowest prices since October 15th. It seems like most of the Chinese New Year demand bump is priced in at this point and the market might believe that not enough production capacity was cut during the recent price decline. Recent stats seem to support this with the Ministry of Ag reporting that October hog slaughter by large companies reached 30.23 million head, up 111% y/y.
US 10-year treasury yield continued to hover at its two-month low at the level of 1.44% as the new covid variant Omicron was found in nearly 30 countries and regions triggering an exodus of capitals from commodities and equities into safer assets such as bonds.
Oil price rebounded marginally after touching a three-month low due to covid-related selloff.