China’s corn starch enterprises expected to turn losses into profit in 2015

After several years spent largely in the red, China’s corn starch companies turned a profit in Q1 2015 and several factors suggest that the producers will be able to build on this progress during the second half of the year.

Corn starch prices have risen significantly in China since the Spring Festival holiday. According to CCM’s price monitoring service, corn starch prices rose 7.4% between February and April alone to reach USD500.5/t.

This increase was partly fuelled by the Chinese government’s decision to expand its temporary storage policy, which pushed corn prices up to USD392.16/t in April, 5.4% higher than prices had been in January. However, corn starch prices have risen even faster than corn prices, offering processors the opportunity to increase their profit margins.

In addition, the low operating rates maintained by processors throughout last year has helped reduce inventories and tighten supplies, giving corn starch companies more power to control prices. During 2014, the average operating rate in China’s corn starch industry was just 51%.

The improved health of the industry is demonstrated by the fact that operating rates were 55% in April, 14% higher than the previous year. With lower inventories and higher prices, companies are clearly more disposed to re-start production.