China's beer-brewing strategy goes flat

SYDNEY - China bought a cargo of malting barley from Australia last week to end a lengthy absence from the market and was also keen to buy from the new crop, a leading Australian grains trader said yesterday.

Last week's purchase of 30,000 to 35,000 tonnes marked a return to the market by Chinese brewers after their strategy of buying substitute cheap feed barley backfired.

Chinese brewers have for months been trying to avoid the higher prices for malting barley by buying cheap animal feed barley to blend with malting barley, Australian traders said.

This is a familiar tactic and usually allows China to produce low-quality cheap beer. But this year the quality of the feed barley has been so poor importers have dumped it.

"Everybody keeps saying 'the Chinese will buy anything, it doesn't matter'. It has been true in the past ... But last year that just went all to pot," said Ole Houe, coarse grains manager at grains trader GrainCorp.

"The quality was so bad and there was not enough high quality to mix it with. Even grain that was bought very early last year, it's been in port now for six months."

Last week China also purchased malting barley from Canada and Europe, Houe said. Reuters said last month that China had bought 60,000 tonnes of French malting barley.

Chinese buyers were now keenly eyeing Australia's new barley crop, well ahead of the normal start of Australia's new-crop marketing season around December, for January or February shipment, Houe said.

But costs were looming as a new problem, as bulk freight rates rise again to take the cost of shipment on the Australia-China run to around US$38 ($54) a tonne of barley, from US$30 three weeks or a month ago.

This had increased the cost and freight price of Australian barley to China to US$204-US$205 a tonne, beyond the mid-US$190s which the Chinese were prepared to pay.

Stripping out the higher shipping rates, malting barley prices in Australia had been unchanged over the past three or four months at around US$165 a tonne, he said.

Still, China's options were limited, with Canadian supplies restricted due to quality problems and European prices generally too expensive.

- REUTERS