"At these kind of (Chinese domestic meal) prices, anybody will bring meal,"said a trader. "Nearby will be Indian meal, followed by South America. Shipswill be delivered to China."

Traders estimated about five Panamax-sized cargoes from South America hadbeen sold to China since Friday last week. Another 30,000-40,000 tonnes ofIndian soymeal is heading for China. With Chinese soymeal prices now as highas 2,400 to 2,500 yuan ($290 to $300) per tonne in some regions, it pays tosend South American soymeal at around $210, C&F, to China, even with theVAT, they said.

Traders said soymeal importers could make $25-$30 a tonne if customofficials scrapped the 13 per cent VAT on imported soymeal, as the statetaxation commission document suggests.

The commission had issued a document on May 25 exempting VAT on the meal ofsoybeans, rapeseed, sunflower seed and peanuts, effective June 1.

A COFCO official in China said on Wednesday that imports theoreticallyshould be exempt from VAT, but customs officials must get their own ordersfrom general customs administration.

Traders divided over tax change effect
Traders were still divided over the effects of the tax change. China hadintroduced VAT on meal at the start of 1999 to protect domestic crushers.They are keeping a close watch to see if or when Chinese soymeal prices willplunge, with the Indian soymeal expected to start arriving during the first10 days of June, and a large lineup of soybean cargoes on the way toChina.

"Soymeal prices have to crash. Maybe that was the aim of the whole action bythe government," said a second trader.Another trader added: "What ishappening now is the prices for the meat is going up. You have to reducemeat prices... Crushers...(moan) about the change, but who cares. They areforeign joint ventures. Meat prices affect everybody in the street."

China quiet in bean market
Traders said China had been sidelined in the soybean market since Fridayafter aggressive purchases since late February.

With some two million tonnes of soybeans on the way to China for May, Juneand July shipments, traders worried that Chinese buyers might now find a wayout of the contracts.

"You are going to hear a lot of defaults, probably... We start to seeproblems developing," said the first trader.

Another trader said: "They will start negotiating. They will try to changebeans for meal. But there's no confirmation yet."

Traders said China could import as much as two million tonnes of soymeal ormore for the second half of this year. It imported nearly four milliontonnes in the peak import year before introducing the VAT.

But some traders said it was too early to conclude that China would stopbuying beans for the rest of the year and switch to soymeal, especially asthe policy change cut prices for soybeans while boosting prices for meal.

China news prompts others to act
Meanwhile, traders said other Asian countries joined in to quickly sealsoymeal deals for fear of price increases triggered by China.

"It's not only China. Other Asian countries are also buying. They arepanicking because of China," said one trader. "One (handy-sized) cargo of USmeal was traded into Indonesia last night for July shipment."

Traders said the price gap between South America and US products hadnarrowed over the past few days to some $7 a tonne from $14-$15. SouthAmerican low-protein soymeal prices were seen around $215 per tonne, C&FChina, up from around $205-$207 last week. Indian meal prices were seen at$224-$225, with some quoting as high as $232 due to scarcity.

Traders said Thailand as well as Malaysia were yet to cover positions forJuly shipments, while South Korea and Indonesia have already covered part oftheir needs for the month. Most of soymeal buyers in the region had openpositions for August.