The edible oil market is facing a “perfect storm” as at least 60% of sunflower oil exports from the Black Sea region (about 8 million tonnes a year) are delayed or at risk of being derailed or significantly reduced this year due to Russia’s invasion of Ukraine, James Fry, chairman of consultancy LMC International, said, Bloomberg reports.
A month ago, LMC International expected supplies from the Black Sea region to rise by 2 million tonnes to 13.5 million tonnes. Still, the market has now responded with rising prices: According to the American CME Group, April futures for sunflower oil became more expensive. Black Sea approached USD 1,599 per tonne and reached USD 1604 per tonne in May and June. According to the World Bank, the average price of 1 tonne of sunflower oil in February 2022 was 1472 USD, while in January, it was 1379 USD and December 2021 – 1361 USD.
Also, the prices of palm oil, of which Malaysia is the main producer, could exceed USD 1,938 per tonne by July 2022 due to problems with labour and logistics – such information is included in the United Nations Food and Agriculture Organisation reports.
According to LMC International, palm oil prices will only start to fall in the third quarter of this year. On the Bursa Malaysia exchange, May futures for palm oil supply traded at USD 1,583 per tonne on Wednesday 9 March. In January, the commodity’s price was still hovering around USD 1,300 per tonne, according to the US Department of Agriculture.
According to the OECD, Ukraine accounted for the bulk of global exports of sunflower seeds and sunflower oil in 2019 – about 46% (USD 3.4 billion). Russia came second with a share of about 23% (USD 1.73 billion).
India has the largest share of sunflower oil imports from the Black Sea region (23 %), followed by China with 12 %. John Sanbakken, director of the US National Sunflower Association, told Time magazine on 8 March that these largest consumers may begin to shift to American products.
In the last two weeks, sunflower oil shipments from Russia and Ukraine have virtually stopped, confirms Dmitry Rylko, Director General of ICAR (Russian Institute for Agricultural Market Studies). It is not surprising that prices for this product on the world markets have also risen. However, in his opinion, there is still much uncertainty about the timely implementation of the Ukrainian sowing campaign. In Russia, although not without local complications, it should generally proceed normally.
At the same time, Rylko notes that Ukrainian and Russian sunflower oil have very different consumers. For Ukraine, the key is the Western European market, where there are certain preferential agreements, while Russia is almost absent there with this product. Russian oil is sent to Iran, China, where land supply is not threatened, and partly to India.
Russian and Ukrainian oil, however, intersect in the Turkish and Arab markets, which are now panicking because of the suspension of supplies. There is virtually no one there to replace Russian and Ukrainian oil if it fails. In theory, only Argentina can do this. However, neither they nor the United States have the capacity to make up the shortfall in the markets most dependent on Russian and Ukrainian oil. It is also unlikely that other oils will replace this product due to consumer habits, Rylko believes.
Unlike wheat, which is massively bought mainly from the MENA (Middle East and North Africa) region, sunflower oil from the Azov-Black Sea basin is actively consumed not only by India and China but also by Europe, notes the chairman of the Union of Grain Exporters Eduard Zernin. For this reason, disruptions in oil supply worry them much more than disrupted grain supplies to Egypt, Turkey and other non-EU countries, the expert believes. The hope that the supply difficulties will not be so severe is that ships of small tonnage have left the Azov Basin in the last few days, with the help of which contracts can be fulfilled at least with Turkey and other Middle Eastern countries as far as Egypt, Zernin believes.