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Nikkei Markets

WH Group says virus won't interrupt pork imports into China

Company sees China pork prices at least 3.5 times higher than in US by year-end

WH Group, an integrated supplier with a presence across hog production, supplies of raw pork as well as packaged meats.   © Reuters

HONG KONG (Nikkei Markets) -- WH Group expects the big difference in pork prices that has greased the path of its lucrative imports into China to be sustained this year despite the new coronavirus outbreak and expectations that the devastation caused by the African Swine Flu will ease.

WH Group, the world's largest pork producer, has benefited over the past several quarters despite the Sino-American trade war by channeling pork from its U.S. and European facilities into China, the world's biggest consumer of the animal protein. More than half of the pig herds in China have reportedly been culled because of the swine flu, helping bolster prices in the mainland and allowing WH Group's unit Smithfield Foods to endure any adverse effects because of excess capacity in the U.S.

Company executives said on a conference call on Tuesday that pork prices in the mainland were expected to be 3.5 times the level in the U.S. by the end of this year even in a worst-case scenario. That is wider than the price differential of 2.5-times last year, but narrower than the difference of 4.1-times at present, they said.

"The African Swine Flu situation has been improving since the second half of 2019 as various hog farms have improved their disease prevention mindset and capability," Executive Director Ma Xiangjie said on the call. "But the [epidemic] will be here for a rather long time... It won't be eradicated in the short term, but it can be tamed."

At the moment, the company doesn't expect the coronavirus to hurt its operations either.

Chief Financial Officer Guo Lijun said WH Group had in January and February seen an increase in orders from the U.S. and other countries even as the pandemic stalled large parts of China's economic activity during that period. He noted, however, that the company can't be sure how the outbreak will change the situation going forward.

The outbreak has so far infected more than 350,000 people and killed more than 16,000 around the world, with an increasing number of authorities now imposing various restrictions to contain its spread.

Earlier in the day, the company said its 2019 net profit before biological fair value adjustment jumped 31.7% to $1.38 billion, helped by higher pork prices. Annual revenue grew 6.6% to $24.10 billion, with revenue from fresh pork sales rising 10.3% to $10.08 billion.

WH Group, an integrated supplier with a presence across hog production, supplies of raw pork as well as packaged meats, began its journey in China as Luohe Cold Storage about five decades ago. It adopted its current name in 2014 following its acquisition of Smithfield.

The company had a capacity globally to produce more than 4.3 million metric tons of packaged meats and process more than 65 million heads at the end of 2019.

"Overabundant supply of meats and the inconsistency of the trading relationship" between the U.S. and other countries were the "greatest challenges" facing the company's U.S. operations, WH Group said in its earnings statement.

Company officials said on the call that they saw no need at present to increase the prices of packaged meat products in China this year, and that any price changes would depend on the fluctuation in raw material costs. The company had last year raised packaged product prices by about 20% in total, following six price increases.

WH Group, which uses chicken meat as a raw material, also said it intends to increase exposure to the poultry business to hedge risks, adding that the poultry business was an "integral part" of its strategy in protein diversification.

Still, the scale of its expansion in poultry will "not be big," Ma said.

WH Group last year processed about 129 million heads of broiler, goose and turkey.

Shares of company jumped 10.7% before the results were declared at the end of the market close in Hong Kong, trimming their losses so far this year to 18%. The Hang Seng Index rose 4.5% on Tuesday, paring its year-to-date decline to 19.6%.

-- Benny Kung & Lopamudra Bhattacharya

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