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Traders and analysts say a trade deal between China and Canada has dented Australia's hopes of becoming China's leading canola supplier, but the Pacific nation's access to the world's largest oilseed importer has improved significantly nonetheless.
China resumed purchases of Canadian canola over the past two weeks, ending a months-long halt caused by a trade dispute.
Australia, a rival exporter, had been working to strengthen its position and capture a share of the Chinese market, selling around 500,000 tonnes to Chinese buyers after overcoming biosecurity hurdles that had previously blocked its access.
"Even if they keep buying Canadian canola, China is now buying our canola for the first time in five years," said Dennis Voznesenski, an analyst at Commonwealth Bank in Sydney.
"Getting back into China, even if it's not exclusive, is good for demand for Australian canola and for its prices," he added.
Traders told Reuters that Chinese buyers rushed to purchase up to 650,000 tonnes of Canadian seed since Beijing and Ottawa struck a preliminary trade agreement earlier this month, which will lower tariffs on Chinese electric vehicles and Canadian canola.
China had imposed preliminary anti-dumping duties of 75.8% on Canadian canola in August, sharply disrupting shipments and hitting its crushing industry. This month's agreement is set to reduce total duties on canola to around 15%.
Traders said Canadian and Australian prices will now drive trading decisions.
"Price is the deciding factor," said Stefan Meyer, who leads a trading team at brokerage StoneX in Sydney.
He noted there is little difference between the delivered cost of Australian and Canadian canola into China, adding: "Australian exporters are matching Canadian prices or offering slightly lower ones."
Two trade sources said Canadian canola seed was being offered in China at $551 a tonne for March shipment, cost and freight included, compared with $550 a tonne for Australian canola. A third source said Australian supply was $5 to $10 cheaper than Canadian.
Traders expect Canada, which grows far more canola than Australia, to reclaim the larger share of the Chinese market.
"Domestic companies still lean more towards buying Canadian canola, having relied on it for years due to its large output and stable supply," said Zhang Dicheng, an analyst at Sublime China Information.
But Australian exporters remain optimistic.
"We can compete on price against volume, and we will win demand if we're able to compete," said a source at an international trading firm in Australia.
He added that this represents "a big improvement compared with having no market access at all".
The first few Australian shipments are part of a trial aimed at proving the country's seed poses no risk of spreading blackleg, a fungal plant disease, in China.
Two shipments totalling around 60,000 tonnes have arrived from Australia so far. One, which arrived in China in January, is due to be crushed this week, according to traders familiar with the matter.
At least two more shipments are due to sail in February, according to shipping data compiled by Bendigo Bank Agribusiness.
Source: Reuters