The Huawei Rift Is Making It Pricey to Fatten Up China's Fish

(Bloomberg) -- U.S. President Donald Trump’s decision to blacklist Huawei Technologies Co. is making it more expensive to fatten up China’s seafood.

Futures on rapeseed meal, which is used to feed China’s massive aquaculture industry, posted their longest winning streak since October on expectations supplies will tighten. The world’s top fish producer has stopped buying Canadian rapeseed, also known as canola, for the coming months -- a time when China usually boosts purchases.

“There have so far been no purchases of Canadian canola for arrival between April to August,” said Hou Xueling, an analyst at Everbright Futures Co. That means “the bulls could drive up prices to an unimaginable level.”

China, the largest buyer of Canadian canola, typically increases imports from April to August to make rapeseed meal. This period is the peak demand season for its fish farming sector, Hou said. The official China National Grain and Oils Information Center also confirmed that the Asian country hasn’t bought any Canadian canola for the coming months.

The ongoing diplomatic spat after Canada’s arrest of Huawei’s Chief Financial Officer Meng Wanzhou late last year on a U.S. extradition request has stunted trade flows of the commodity. While the latest data from China showed a bump in shipments in April, that’s likely only because canola cargoes had been held up in the earlier months for customs inspections.

September futures for rapeseed meal surged 4.6% on Wednesday to 2,592 yuan per ton. The most-active contract gained a fifth day for the longest winning streak since October, while open interest rose to the highest since March. Rapeseed meal prices jumped more than its rival soybean meal, which also rallied on U.S. weather concerns.

If the trade rift continues, the risk rises that the physical delivery for the September contract will fail, as rapeseed meal produced from Chinese crops won’t qualify for delivery on the Zhengzhou Commodity Exchange where the futures are traded. Still, the exchange may take measures to prevent such failures, said Lu Yun, an analyst at Shanghai JC Intelligence Co.

To contact Bloomberg News staff for this story: Niu Shuping in Beijing at nshuping@bloomberg.net

To contact the editors responsible for this story: Anna Kitanaka at akitanaka@bloomberg.net, Atul Prakash

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With assistance from Bloomberg