Canadian canola futures rally as China set to cut tariffs

BEIJING/PARIS, Jan 16 (Reuters) - Canadian canola futures rose about 2% on Friday after Ottawa announced a trade deal with Beijing that will cut tariffs on the oilseed and revive exports to China.

The agreement would also see Canada slash levies on Chinese electric vehicles which had prompted Beijing's retaliation over canola.

On a visit to China, Canadian Prime Minister Mark Carney said he expected Beijing to lower tariffs on Canadian canola seed by March 1 to a combined rate of about 15%. An anti-dumping duty of 75.8% imposed last August had priced Canadian canola out of the Chinese market.

March canola RSH6 on ICE was up 2.2% at C$648.10 ($466.53) a metric ton by 1030 GMT, after reaching its highest since December 3. The contract had already set one-month highs in the past week on bets of a breakthrough during Carney's trip.

Still, few had expected a comprehensive deal removing most canola and pea tariffs.

"This is unexpected," said Winnipeg, Canada canola trader Tony Tryhuk of RBC Dominion Securities, who was preparing for what could be a hectic day in the ICE canola market as traders, farmers and commercial users wake up to the news.

"This is a best-case scenario outcome for PM Carney and for Canadian farmers, who will see their market in China rebound in the wake of this deal," said Even Rogers Pay, a director at Beijing-based Trivium China.

Monthly Chinese canola imports fell to zero in October for the first time in two decades, trade data shows.

The halt in Canadian shipments has brought China's vast canola crushing industry to a standstill for the first time since at least 2015, according to data from MySteel.

The market was awaiting confirmation from Beijing of the terms of the accord while further price gains may be limited, analysts said.

"If the combined tariff rate is cut to 15%, significant buying of Canadian canola seeds is likely," Zhang Deqiang, analyst at Sublime China Information, said.

"Current prices do offer a crush margin, but uncertainties remain over whether Canadian canola prices will continue to rise."

Canada's pulse crops industry celebrated the news that the extra tariffs will be at least temporarily removed from pea sales to China. China is a major export market for Canadian peas, as is India, and each market has been at least partially blocked to Canadian product by tariffs and other measures.

Pulse Canada praised the Canada-China deal. "Today's announcement reinforces the importance of constructive, proactive engagement between trading partners, and we look forward to working together to ensure this removal is permanent," said organization Chair Terry Youzwa, who is also a Saskatchewan farmer.

Winnipeg futures and options broker David Derwin of Ventum Financial said the price gains in ICE canola futures show that the news from China was a surprise, but right now, with March futures around $650, prices have only returned to early December levels.

Today's trading session will reveal more about how the market views the commercial impact of this deal. "It puts positive news in front of the market, which is a change from all of the bad news," said Derwin.

($1 = 1.3892 Canadian dollars)