- According to Bloomberg last Friday, five people have died from the new strain of bird flu that has emerged in eastern China.

- Shanghai has reported six of the 14 human cases of the H7N9 strain of aviation influenza confirmed by local authorities.

- According to World Health Organisation, the extent of the outbreak is still being investigated and it is too early to tell whether the cases signal a pandemic.

- H7N9 would result in lower demand for poultry and subsequently, soybean.

- This is because soybeans are crushed into soymeal, which is part of the feed for poultry and hogs in China.

- As such, in the short-term, soybean prices may fall and CPO prices may follow suit.

- The silver lining is that the supply of soybean oil may decline due to less crushing of soybean.

- Hence, any supply shortfall in soybean oil in China may mitigate any weakness in CPO prices.

- This, coupled with the summer season ahead in the country, would help improve the demand for palm oil. According to a Bloomberg article on 1 April 2013, palm oil inventories at the ports in China amounted to 1.19mil tonnes, about 60,000 tonnes less than the level in the previous week. It was also 100,000 tonnes lower than the level in the beginning of March.

- If H7N9 were to become serious, then Wilmar International is likely to be affected. Wilmar is one of the largest soybean crushers and refiners in China.

- About 0.8% of Wilmar’s FY12 pre-tax profit came from the oilseeds and grains division (mainly soybean crushing and refining). In FY11, the division accounted for 20.3% of Wilmar’s pre-tax profit. The fall in the division’s contribution in FY12 was due to weak crushing margins.

- Roughly 47% of Wilmar’s pre-tax profit in FY12 was generated by the palm and laurics division (mainly palm refining and processing).

Source: AmeSecurities