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Commodities

China-Canada spat over Huawei sends oilseed prices sliding

Exporter accuses Beijing of retaliatory 'attack' on Canadian agriculture

Canada is the world's No. 1 exporter of rapeseed, shipping 11 million tons a year.

TOKYO -- Tensions between China and Canada triggered by the arrest of a Huawei Technologies executive are spilling over far beyond the tech sector, commodity prices suggest.

International prices of rapeseed have dropped sharply over the past month due to expectations that China, a leading consumer, would cut imports from Canada, a major producer. The two countries have been at odds since Huawei CFO Meng Wanzhou was detained by Canadian authorities in December at the request of the U.S.

Rapeseed is a key source of vegetable oil. Near-term futures prices in New York, which serve as a benchmark for international prices, hit 450 Canadian dollars ($337.45) per ton in early March, down 7% on the month and 10% from a year earlier.

While Canada is preparing to extradite Meng to the U.S., where she faces charges of violating Iran sanctions at the telecom equipment maker, China announced on March 6 that it was banning rapeseed imports from Richardson International, a top Canadian grain processor.

Beijing attributed the decision to repeated discoveries of harmful substances in Richardson's product, but the move was widely seen as retaliation over Meng.

A Richardson executive told The Globe and Mail, a Canadian newspaper, that the ban was a Chinese "attack" on the Canadian agricultural industry. "The timing suggests it's something much greater than a quality issue that pertains to Richardson," the executive said.

Canada exports a world-leading 11 million tons of rapeseed a year, while China ships in around 50 million tons overall.

Some industry watchers think any import restrictions will be temporary. China's economy is not growing like it used to, but demand for vegetable oils is still increasing, and the country cannot meet demand without Canadian rapeseed, an official at a major Japanese trading house said.

Japan also relies on Canada for rapeseed, procuring more than 2 million tons a year.

Others warn the issue is wrapped up with other friction that may not be resolved soon. "The import ban [on Richardson] is partly attributable to trade friction between the U.S. and China," said Akio Shibata, head of the Japan-based Natural Resource and Research Institute. "As the problem cannot be settled quickly, weak prices may drag on."

Fading hopes for a sweeping U.S.-China trade deal are also weighing on the prices of soybeans, another source of edible oil, with speculators actively selling the legumes. Prices in Chicago futures trading fell to around $8.8 per bushel in mid-March, down 2% from the beginning of the year.

China was the biggest importer of U.S.-grown soybeans before the trade conflict broke out, purchasing 30 million tons per year. Imports decreased after China imposed a retaliatory tariff. And although import deals have been struck recently, the volume is "not enough," observed Naoyuki Omoto, head of Green County, a grain consultancy in Tokyo.

Continued downward pressure on these markets could affect edible oil producers, as customers would have a stronger case for price cuts.

"It is unclear," an official at a major Japanese edible oil company said, "whether near-term price fluctuations will affect product prices."

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