China's corn starch industry in 2021-Q1 2022 05-25-2022

Summary: On 7 April, China Starch Industry Association held a conference to analyse China's corn starch industry in Q1 2022. In 2021, the production volume of corn starch totalled 39.17 million tonnes and the corn starch processing industry saw an approximately 59% increase in profit.

On 7 April, China Starch Industry Association, together with five corn starch leading enterprises in China, namely COFCO Biotechnology Co., Ltd., Shandong Shouguang Juneng Golden Corn Co., Ltd., Zhucheng Xingmao Corn Developing Co., Ltd., Shandong Fuyang Biotechnology Co., Ltd., Xiangyu Jingu Biochemical Technology Co., Ltd., held a conference to analyse China corn starch industry in Q1 2022.


A review of China's corn starch industry in 2021

The world economy was still shrouded in the haze of the COVID-19 in 2021. China placed equal emphasis on containing the virus and boosting the economic recovery. Due to numerous factors such as global inflation, national policies of carbon emission and restriction on coal consumption, soaring energy prices and surging planting cost of corn, corn starch producers in the major producing areas were under greater pressure because of higher production costs. But the rise in corn prices and profits of corn by-products led to a rebound in the output value and efficiency of the corn starch industry.


In 2021, China's corn starch production totalled 39.17 million tonnes, and the deep-processing products of corn starch were 20.01 million tonnes in total, including 11.28 million tonnes of liquid sugar, 5.36 million tonnes of solid sugar, 1.82 million tonnes of modified starch, 1.54 million tonnes of sugar alcohol. The profit of the corn starch industry rose by about 59%. The operating rate of the corn starch industry slipped a bit, with an average operating rate of about 60%, a figure slightly down 4–5 percentage points compared with the previous year. The decline was caused by a number of unfavourable factors such as a tight supply of raw materials, excessive inventories of finished goods, weak downstream demand, etc.

China's corn starch industry in Q1 2022

In the first quarter of this year, due to the international and domestic factors such as inflation, the pandemic and the Russia-Ukraine conflict, etc. the corn starch market experienced drastic volatility. Although the prices of corn the raw material fell compared to the same period of 2021, the industry still faced high costs because the coal prices and transport and logistics costs have been rising recently. In March, the production activities in some regions were suspended as a result of the sporadic outbreak of the pandemic and the policy for prevention and control of coronavirus. Moreover, the logistics and transport delays disrupted the production and supply and dampened consumer demand. Therefore, the industry witnessed a sluggish supply and demand, and the seasonal excess inventory came earlier. The rising prices or costs of corn the raw material, auxiliary materials, coal, transportation, labour, packaging materials, etc. led to the higher processing costs for enterprises. Consequently, their business performances were doing worse than expected and profits drop around the break-even point.


Issues and suggestions

  • Products were piled up in the factories because of the weak supply and demand as well as the gap between production and sale both caused by the pandemic. The excess stock placed huge pressure on some enterprises. Therefore, enterprises should be more active in dealing with the market changes, and on the premise of ensuring the companies' profits, cut their production and reduce inventory immediately to mitigate the risk.
  • Currently, the price of corn oil is low, which is bad for the development of the industry. Therefore, it's important to develop a new pricing strategy for this product. 
  • Strengthen industry self-discipline, avoid cut-throat competition, develop a "necessary costs + reasonable profits" pricing strategy, and also reduce the amount of forward contract for it may add more unknown risk to the enterprises as forward contract spans a long period of time.
  • The processing of starch is in the field of the primary processing of agriculture products. By-products like corn germ, corn fibre and corn gluten produced from the processing of corn will be used in the feed industry. However, the starch processing enterprises do not enjoy the same preferential tax policy, which adds to the tax burdens on the starch enterprises.
  • Handle the relations of grain production, processing and consumption properly. According to their refining process, subdivide the products into different categories and apply them to the corresponding field more preciously and effectively. Strictly controlling the corn-based ethanol fuel processing industry and encouraging the cellulosic ethanol produced from corn stover and other agricultural wastes can not only safeguard the national food security, but also address the environmental issues caused by the burning of agricultural waste.
  • Adopt a new business model and make good use of the futures markets and over-the-counter (OTC) options of corn and starch. The business model of enterprises should switch from the low-cost spot trading to a model that combines spot trading and futures trading. Improve the enterprises' risk management ability.
  • The escalating Russian-Ukraine conflict pushes up the global prices of major commodities such as oil, natural gas, grain, etc., thus stoking fears of food shortage, surging prices and the short supply of fertiliser and also leading to restrictions on the export of food imposed by some countries. The supply issues contribute to high inflation. The impacts of the Russian-Ukraine conflict and market changes remain a significant factors to keep an eye on.


More information please check CCM Corn products China Monthly Report.

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