Trade

China: Fallout continues for beef, in wake of coronavirus outbreak

Jon Condon, February 3, 2020

THE Chinese government has offered financial protection for food importers and other Chinese businesses in the latest fallout from the country’s coronavirus disease outbreak.

As the government extended measures to limit the economic impact from the crisis, China’s Council for The Promotion of International Trade said it would support businesses that are unable to honour trade contracts with certificates to declare ‘force majeure’ – a clause enabling contract default for “act of god” unexpected events.

The government’s decision to offer force majeure certificates to companies struggling to cope with the impact of the coronavirus epidemic on their business with overseas partners has caused some disquiet in the export meat market this week.

Demand for imported beef has declined dramatically since the coronavirus crisis emerged a fortnight ago, with Chinese New Year celebrations dramatically disrupted, and Chinese citizens voluntarily staying at home to avoid risk of infection.

“The move (to enact force majeure) is to safeguard the rights and interests of companies based in China as well as to help businesses reduce losses,” the CCPIT said in a statement yesterday.

Businesses that had failed to perform on contracts on time, or failed to fulfil any international trade contract could apply to the council for a certificate, it said on its website.

The announcement has prompted questions among meat market participants about the duration, details and market impact of the action, with some asking exactly what constituted a buyer’s “inability to fulfil their international contractual obligations.”

Sources this morning said at least one Chinese end-user had already submitted a claim for a force majeure certificate on imported red meat, but Beef Central was unable to substantiate this.

The World Health Organisation last week declared the coronavirus outbreak a global public health emergency. The death toll in China has reached 360, and infections have passed 17,000. Some authorities fear the disease could become a pandemic, circling the globe.

Beyond the immediate disruptions caused by measures to control spread of the virus within China, especially movement of people, fears are now arising that beef demand may be impacted longer-term by a slowdown in the Chinese economy. A government economist last week forecast that the world’s second-largest economy may see its economic growth drop to 5pc or even lower this year, raising fears of weaker general demand for red meat.

China extended its Lunar New Year holiday for a week last month, but some companies will not to resume operations before February 10, in a bid to prevent further spread of the virus.

Even before the coronavirus outbreak took hold, beef demand in China took a dramatic downturn after getting ‘seriously overheated’ in November, one exporter told Beef Central this morning.

“At this stage we don’t know the full extent of how the virus is going to affect the imported meat market,” a trade source said.

“Despite the dramatic events that are unfolding, we think the fundamental need for China to continue to import meat protein, following the dramatic collapse of the country’s pork industry due to African Swine Fever, remains unchanged,” he said.

While coronavirus had inevitably heightened the problems in the China meat market at present,   in truth any Chinese importer who was tempted to reneg on import contracts on beef had probably already done it before the virus took hold, he said.

Since the market highs of November, imported meat pricing into China had retracted dramatically as the year finished, in places back 30pc or more, as buyers over-bought for Chinese New Year requirements. Reports of containers being left unclaimed on the wharf, and buyers either walking away from 30pc deposits on consignments, or seeking to renegotiate on price were common last month.

“The problems in the market were all up in the air over the Chinese New Year period, and well before the coronavirus issue emerged,” the trade source said. “The virus has just added another significant layer of uncertainly – especially as the Chinese New Year celebrations were basically called-off, collapsing consumption.”

It’s hard to predict how long the Chinese demand issues around coronavirus may last. Some, in fact see it as perhaps a long-term opportunity for Australian beef. Given that some believe coronavirus came from eating exotic animals from a Chinese wet market, it could elevate Chinese consumer concerns about domestically-sourced protein, and further underscore Australia’s clean/green credentials, one exporter said this morning.

One prominent exporter suspected that the premium end of Australian beef supply – Wagyu and Angus brand programs, for example – would probably bounce back reasonably quickly, but the commodity end of the industry might be a lot slower to recover.

Meanwhile the slowdown in beef trade to China is seeing some buildup of stocks within Australia in the past ten days, in what was already a ‘very flat’ January domestic beef market.

Some of that would be beef carrying a China label ordered at higher prices back in November, but which had since been reneged-on by customers, beef Central was told.

“How owners deal with that remains to be seen,” an exporter said.

“Some may go into alternate markets like Japan or the US, but some is likely to remain in the domestic market, with some age in it,” he said.

While the US imported lean beef market was looking stronger for Australia only a week or ten days ago, prices have softened since around Wednesday last week, as Chinese competition dropped away.

The market for 90CL manufacturing beef into the US has eased this week, quoted this morning at US230c/lb CIF, for prompt delivery, back 8-12c/lb on earlier rates. Meat for later delivery in April would attract bigger discounts than that, once exporter said.

  • More on the state of the domestic market in a separate report this week.

 

 

 

 

HAVE YOUR SAY

Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

Get Beef Central's news headlines emailed to you -
FREE!