Wine merchants stock up in prices bet

Mainland's probe into EU dumping spurs rush of orders in expectation of higher prices, but some warn the hoarding of top labels could backfire

PUBLISHED : Monday, 19 August, 2013, 12:00am
UPDATED : Monday, 19 August, 2013, 3:40am

China's anti-dumping probe into European wine imports has driven up orders from mainland wine merchants who are betting on a spike in prices.

But traders said over-optimism could further dampen the market, which is still struggling from weak demand and slumping prices for fine wine.

Mainland merchants have been stocking up on European wines since the Ministry of Commerce announced on June 5 it would look into the need to raise import duties on European wine imports following the European Union's decision to slap tariffs on Chinese solar panel imports.

But some wine traders warned that excessive hoarding of wines - especially labels priced at more than HK$1,000 a bottle - was risky as Beijing's clamp-down on lavish administrative spending early this year had hurt sales and led to high inventories.

C&D Wines, one of China's biggest alcohol traders and retailers, was reported to have held a 600 million-yuan fine wine and liquor stock whose value has dropped by 30 per cent since 2011.

A sales manager at the Xiamen-based company said it had cut orders of fine wine imports.

"We are still buying but our orders are made according to the sales forecast," said Xu Xiaohui of C&D Wines. "Fine wine and liquor still has its market, but we had lost the bulk of the customers who spent without thinking. Now the fine wine sector is only buoyed by high net-worth individuals and private enterprises."

Falling inventory prices, coupled with storage costs, drove C&D Wines - a wholly owned subsidiary of Shanghai-listed trading and property conglomerate Xiamen C&D, into a deficit of 150 million yuan (HK$188.6 million) last year, compared with a profit of 36 million yuan in 2011.

Apart from weakened demand, the China-EU trade war may not end the way that wine hoarders wish. The market generally expects China's wine investigation to not result in action against the EU, since the EU has delayed its tariff on Chinese solar products pending the outcome of China's wine probe.

The price of top wines like Lafite Rothschild's 2000 vintage almost halved from more than £1,900 (HK$23,000) a bottle to £1,100 in October last year. Prices remained below £1,200 until last month, wine researcher Cellar Watch says.

While wine imports fell 25.9 per cent to 27 million litres in June, according customs figures, traders said that only reflected orders placed in March and April, when the sentiment was at its worst. Mainland wine trading platforms like which specialises in Bordeaux wines, saw sales rise 30 per cent in June.

Sam Lone, general manager of mainland wine importer Chinaplus Wines, said the recent "hoarding" was not quite like that seen in 2009 and 2010, when even inexperienced traders poured millions of dollars into wines they knew little about.

"I suspect most of the stock-up is related to the usual preparation for surging demand ahead of the upcoming mid-autumn festival and October's National Day," Lone said.

But Henry Ho, president of the Hong Kong Wine Merchants' Chamber of Commerce, said bad weather in France could squeeze supply from Burgundy by 2015, leading to higher prices.