MUMBAI- Uncertainty over sunflower oil supplies due to the conflict between Russia and Ukraine is spurring demand for rivals palm oil and soyoil, fuelling a red-hot vegetable oil market.
The Black Sea accounts for 60% of world sunoil output and 76% of exports, so the uncertainty over how the crisis in the region may impact crop production and movement has prompted buyers to seek alternative oils.
Surging palm oil and soyoil prices could hit new record highs in the short term, and squeeze price-sensitive Asian and African consumers already reeling from spiralling fuel and food costs, analysts and traders said.
"We are facing a perfect storm," James Fry, chairman of commodities consultancy LMC International, told Reuters.
Buyers are already struggling to secure replacement supplies after Indonesia, the top exporter of palm oil - the most-produced edible oil - restricted exports this year while drought slammed output of soyoil - the second most produced edible oil - in South America. Vegetable oil buyers were banking on sunflower oil, the fourth most produced oil after rapeseed oil, to plug the supply gap. Russia's move to order troops into separatist regions of eastern Ukraine has now raised fears of supply disruption.
Sunflower oil vessel loading has already been delayed by at least a week from Ukraine, said Sandeep Bajoria, president of the International Sunflower Oil Association.
"Sunoil is right now the cheapest edible oil, but buyers are sceptical about delivery. They are moving towards soyoil and palm," said Bajoria, who is also chief executive of one of India's largest edible oil brokerages, Sunvin Group. India is the world's top edible oil importer.
Crude palm and soybean oils are being offered at a record $1,700 a tonne - including cost, insurance and freight (CIF) - in India for March shipments, compared with $1,620 for crude sunflower oil, traders said.
LITTLE CHOICE
Palm oil usually trades at a substantial discount to soyoil and sunoil, but Indonesia's export curbs have lifted the tropical oil's price by 27.5% this year, more than any rival.
That has slowed purchases from cost-sensitive buyers in India and China, who had hoped prices would weaken, said a Kuala Lumpur based dealer.
But tightening local inventories in key consumer hubs means those buyers may soon have to re-stock.
"They don't have a choice. They have to replenish inventories at record high prices," the dealer said.
Despite the geopolitical tensions, sunoil remains a popular choice among potential buyers.
"For the short term sunoil supplies may get disrupted, but once the situation normalises, sunoil supplies would pick up," said Sudhakar Desai, president of the Indian Vegetable Oil Producers' Association (IVPA).
Sunflower oil exports from Ukraine could jump to 6.6 million tonnes in the 2021/22 season from 5.3 million tonnes in 2020/21, Ukrainian sunoil producers' union estimates.
While the uncertainty surrounding Black Sea sun oil shipments persists, global edible oil prices are set to remain elevated unless Indonesia lifts its export curbs, said a Mumbai-based dealer with a global trading firm.
"Only Indonesia can salvage the consumers. We can’t rely on soyoil as soybean crop size has been continuously shrinking in South America," the dealer said.
(Reporting by Rajendra Jadhav; editing by Gavin Maguire and Emelia Sithole-Matarise) ((rajendra.jadhav@thomsonreuters.com; +91-22-68414378 ; Reuters Messaging: rajendra.jadhav.thomsonreuters.com@reuters.net))
