09/06/2011 (Reuters) -  China, the world's No.2 vegetable oil buyer, has suspended regular rapeseed oil auctions and lifted a seven-month price cap on retail vegetable oil prices, industry sources told Reuters on this week.

Here are some questions and answers on what this move means:

WHY DID BEIJING REMOVE THE EDIBLE OIL PRICE CAP?

The retail price cap order, issued in November, has triggered losses for the soy crushing industry even though Beijing has tried to stem the impact by offering cheap soybeans and edible oils to China's five largest crushers.

The top crushers are Wilmar , COFCO, Chinatex, Heilongjiang Jiusan Oil & Fat Co and Hebei Hopefull Grain and Oil Group Co.

Industry officials in the top soy growing region of Heilongjiang have called it an unfair move as other crushers have lowered their offer prices for soy crops, prompting farmers to plant 10 percent less this year.

China lifting the price cap also has to do with the recent rapeseed harvests. The government has set the rapeseed selling price 18 percent higher and the extension of the price freeze would make it difficult for crushers to take up the crop without losses.

HAVE BIG EDIBLE OIL PROCESSORS RAISED PRICES YET?

Not as yet. Traders and analysts say it is still unclear if cooking oil producers will be required to obtain government approval to raise prices following the removal of the price freeze.

The top five crushers that got cheap state reserves are not in a hurry to raise prices as the volume of soy and edible oil reserves offered by the government are the equivalent of two to three months of consumption, analysts say.

Singapore-listed Wilmar's shares rose as much as 2.6 percent on Wednesday, boosted by news that China had lifted the freeze on cooking oil prices.

WOULD THAT MEAN PALM OIL PRICES, IMPORTS WILL RISE?

Palm oil prices did not react to the move although traders see some upside as China, the world's No.2 importer of vegetable oil, will buy more in the peak summer months.

HOW ABOUT CHINA'S DOMESTIC SOYOIL?

Dalian's soyoil futures are unlikely to surge as the government had earlier released cheap oilseed reserves to major crushers that boosted domestic supply.

Also, large soy imports from South America will cap any price rise in the coming months. Beijing also has the luxury of releasing more reserves to stall massive price increases in the market.

Oilseed crushers are also expecting China's consumer price index to remain high in May or go beyond five percent, potentially prompting another interest rate hike that could pressure Dalian futures.

HOW MUCH VEGOIL, OILSEED RESERVES DOES BEIJING HAVE?

That's a state secret. The government has not sold large volumes of soyoil reserves, which analysts estimate at about two million tonnes.

Soy reserves probably stand at 2 to 3 million tonnes after the government released more than three million tonnes to the five major crushers in the country.