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UPDATE 3-WH Group cautious on Smithfield China due to pork processing glut

(Adds detail, data)

By Dominique Patton

BEIJING, March 7 China's WH Group Ltd will be cautious about expanding Smithfield's pork processing operations in China due to over-capacity in the world's biggest pork market, Chairman and Chief Executive Officer Wan Long said in an interview on Tuesday.

Speaking on the sidelines of parliament's annual meeting, Wan said he expects pork prices to fall to an average of 14 yuan to 15 yuan ($4.20) per kilo this year after hitting a record high in 2016.

"Over-capacity in China is not only in heavy industry, but also the food industry suffers from this problem, so we will expand according to the Chinese market situation," Wan said.

"We will see next year and the year after how the Chinese market develops. If it's fast, we will quickly continue to expand in Wuhan, Guangdong, Xian, Shenyang and Shanghai."

His comments come four years after WH Group bought U.S.-based Smithfield Food Inc, the world's biggest pork producer, for almost $5 billion, in a deal aimed at tapping the massive supplies of U.S. meat for export to China.

Wan said he expects WH Group's imports of U.S. pork to China to increase this year from 300,000 tonnes in 2016.

As demand growth for meat in China stagnates, WH Group is aiming to grab a bigger share of the lucrative market supplying young urbanites in China, who are willing to spend more on premium products like Western-style processed meats such as bacon and salami.

Others are following a similar route - top European pork producer Danish Crown is building a new factory to supply fresh meat to consumers in Shanghai.

Smithfield products made at a purpose-built factory in Zhengzhou sell for about 20-30 percent more in China than local brands, added Wan, while imported pork is currently about half the cost of local material priced around 16 yuan per kg.

Cutting costs is important as Chinese pork prices are expected to remain high amid a major shift in hog farming in the country. Smaller farmers are leaving the sector more rapidly than larger corporate farms are expanding production, said Wan, causing a shortage in supply.

Pork demand has also been impacted by a slowing economy. Consumption growth is expected to slow to less than 1 percent annually through 2020, according to Rabobank.

Growth is much higher in beef, which is in short supply in China, prompting WH Group to consider expanding into this area, said Wan.

There are currently no plans for further acquisitions, he added.

($1 = 6.8975 Chinese yuan renminbi) (Reporting by Dominique Patton; Writing by Josephine Mason; Editing by Christian Schmollinger and David Evans)

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