EU Sunflower Oil: Where Are Prices Heading? — Tridge

The sunflower oil supply and demand situation in the EU has been rather tight over weaker sunflower growing conditions, poor soil moisture levels in some major producing countries, and the reduction of Ukraine’s sunflower exports since the beginning of the Russia-Ukraine war. A reduction in sunflower oil production by 181 thousand mt in the current marketing year has added additional pressure.

According to data from the EU Commission’s Oilseeds and Protein Crops market situation published at the end of last month, usable sunflower oil production for the 2021/22 marketing year was 4.06 million mt, down 4.5% from the previous marketing year. Domestic use in the same year summed up to 5.34 million mt. The gap signals that the EU is relying on imports to supplement its insatiable domestic usage. Imports stood at 2.04 million mt, making domestic supply rather tighter than anticipated.

Traditionally, the EU takes about 40% of total sunflower oil imports from Ukraine, and any disruption in the domestic situation in Ukraine tends to affect activities in the EU market. According to data from the Ministry of Agrarian Policy and Food of Ukraine, exports have fallen since the war broke out. In December last year, Ukraine’s sunflower exports stood at 700 thousand mt but fell significantly to a little under 50 thousand mt in March. The decrease in exports to the rest of the world, including the EU, has caused much stress to the EU demand and supply dynamics, helping to push prices to elevated levels recently.

That said, EU oilseeds, if available, are expected to push up toward the end of the year. So far in the 2022/23 marketing year, provisional data from the EU Commission put all oilseeds imports at 3.07 million mt up from the 2.56 million mt imported in the same period the previous marketing year.

On the other hand, oil imports have been lackadaisical. The same reports put the total sunflower oil imports in weeks 1–8 of the new marketing year at 232 thousand mt, down from the 240 thousand mt YoY. Similarly, the EU commission’s Oilseeds and Protein Crops market situation report, projects sunflower oil production in the 2022/23 season to be 3.86 million mt, down 200 thousand mt YoY. Imports in the same season are not expected to edge up but rather fall 2% to 2.0 million mt.

Going into the last quarter of the year, there is going to be a shortfall in usable stocks with no clear alternate suppliers. Tridge expects the EU sunflower oil situation to remain tight. The situation of the feedstock, oilseed sunflower has no positive picture in the horizon- the EU commission forecast for production in the 2022–23 marketing year is 9.8 million mt, down 4% YoY from 10.3 million mt.

Despite the weakening production of sunflower oil and oilseeds forecasted, prices continue to fall owing to heavy a build-up of stocks in the previous marketing year. The EU Bordeaux sunflower export price has fallen from its peak in March to $747/mt. The price has unexpectedly broken below the $760 price point, which was seen as a strong support level. Similarly, the Sunflower Oil FOB Northwest Europe price has fallen below the 1500 support line to USD1490/mt. There is no clear support level which means that prices feel more comfortable moving downward in the nearby.

Where are European prices heading towards? Daniel Mervar, Tridge Origination Manager in Sweden, tries to give an answer. “More oil is coming out of Ukraine and the market is seeing ships now getting out with goods to Turkey and other destinations, which probably is loosening stress on prices”. Daniel further adds that “transportation continues to be a problem for all parties’’. Other Tridge analysts monitoring the situation are currently seeing Sunflower oil from Ukraine moving through inland ports on the Danube while other shipments are also moving via land routes.

These bearish factors may offset some of the bullish fundamentals in the EU supply and demand picture and help keep prices down at least, in the near term. On the positive side, trade dynamics seem to have developed on the back of the covid-19 pandemic to withstand shocks of this nature. Demand from the biodiesel industry for sunflower oil as a feedstock is one factor that should be followed closely — any uptick in demand will put some pressure on sunflower prices in the EU.

Originally published at https://www.tridge.com on September 5, 2022.