"We haven't seen much increase from the feed industry, but demand from the processing industries is growing a lot, especially from the major corn producing areas," said Yu Junli, chief analyst at Green Futures Co.

With the Dalian September corn contract hitting a record 1,520 yuan ($189) a tonne last month, cash prices have risen to levels not seen since 2004.

A corn auction on Friday of more than one million tonnes by Jilin, the country's top corn producing province in north east China, failed to cool the market. The cash price in Dalian is hovering at 1,310 yuan, well above 1,150 yuan level a year ago.

Some analysts said China, the world's number three corn exporter last year, might become an corn importer later this year or next year if prices remain high.

"We expect China to import corn within the next two years, or even earlier than that," Yu Junli at Green Futures said.

CNGOIC, the state-owned think tank, estimated the country's annual corn consumption by the processing industries, including starch or ethanol, would rise to 20 million tonnes this year from 16 million last year. It is expected to reach 40 million tonnes by 2010.

China's corn consumption is expected to total 125 million tonnes this year, compared with the 2005 crop of 134 million.

Corn can be processed into different products, including corn starch, corn gluten and corn oil. This can be processed further into a wide range of biochemical products, such as high fructose corn syrup used in soft drinks.

ETHANOL BOOM

In an attempt to stem further rises in corn prices, Beijing has suspended corn exports from this month. Some officials said it may also cut subsidies for ethanol, which has enjoyed generous support from Beijing to limit crude oil imports.

Officially China has only four ethanol plants, with those in Jilin, Heilongjiang and Anhui churning out about one million tonnes each year from around three million tonnes of corn.

Still, high crude oil prices, coupled with huge subsidies of about 1,300 yuan per a tonne of ethanol, have encouraged many to join the sector. There is also talk that a plant has been built in Shandong province, though it failed to win approval from Beijing.

"Many are applying for ethanol. Once approved, you're entitled to the subsidies. Which other industries can get this kind of subsidies?" asked a trader at an international house.

Beijing is expected to slash subsidies by between 5 to 1,022 yuan per tonne, depending on the location. But some support for ethanol will be kept as it helps China reduce pollution and dependence on imported oil, the trader added.

Jilin, already home to the world's largest ethanol plant, is particularly aggressive in developing corn processing industries. It hopes to digest all of its annual corn crop of about 20 million itself, the officials said.

They said high sugar prices, which spiralled to a 25-year high last month, were also accelerating production of cheaper corn sweeteners, especially as the country's demand for sugar is on the increase in line with the rising standard of living.

"Many food and soft drinks makers have turned to corn syrup. It is definitely eating into natural sugar consumption," said a trader at a state-owned trading firm.

The size of the corn syrup industry was not immediately clear. But another sugar trader estimated it was already producing an equivalent of 2-3 million tonnes of sugar.

An official from Global Bio-Chem Technology (HK) Ltd, a leading Chinese corn sweetener producer based in Jilin, said it was considering expanding production.

At present, it manufactured about 660,000 tonnes of corn sweeteners, including 100,000 tonnes of high fructose corn syrup at its Shanghai joint venture with Cargill Inc.