Logistics and global dynamics in focus for EU vegetable oil market

The EU vegetable oil market will be affected by logistical challenges in Ukraine and high stockpiles at destinations, while tighter soybean oil supplies and dry weather in Asia may support the complex.

Black Sea and internal logistics

Russia exited the UN-brokered Black Sea Grain Deal in July 2023, cutting off Ukraine's access to safe shipments via the Black Sea corridor. In August, Ukraine launched an alternative marine corridor which, together with the Danube ports and cross-border exports to the EU, has allowed Ukraine to export food despite the war.

Ukraine's vegetable oil cargoes are mostly exported via the Danube ports and the EU border, with infrequent shipments via the Odesa (Black Sea) ports.

"Danube utilizes safer routes, so freight rates are lower as there's no need for war insurance," one trader said. "It's still rare for people to use Odesa ports for sunflower oil."

Protests by Polish carriers on the Ukraine-Poland border since mid-November have affected trade flows into the EU. The situation remains unresolved as of mid-December despite the newly elected Polish prime minister's promises.

State monopolist JSC Ukrzaliznytsia intends to raise freight rail transport tariffs in 2024 and increase the cost of freight cars, said the Ukrainian Grain Association. This could increase logistics costs for farmers, hamper profitability, and result in lower 2024-25 plantings and exports.

Sunflower oil outlook

S&P Global Commodity Insights analysts forecast Ukraine's 2023-24 sunflower oil exports at 4.8 million mt, 13% lower on the year, as supplies are tighter due to a smaller carryover.

Slowing demand amid high inventories could weigh on sunflower oil prices in the near term, with weaker demand from China, India, Turkey and the EU in mid-December.

The widening price gap between cheaper palm oil and rival oils reduced demand from India. Meanwhile, EU demand was affected by protests at the Ukraine-Poland border.

"Europe who was paying decent prices isn't active at all," one trader said.

However, exports to Turkey could be supported by tighter local supplies as the Turkish 2023-24 sunflower seed crop may fall 27% to 1.2 million mt due to extreme heat and drought, Oil World data showed.

Platts, part of S&P Global Commodity Insights, assessed Ukrainian sunflower oil FOB Black Sea at $795/mt on Dec. 15, although this was elevated compared with the yearly low of $690/mt in mid-September as the market found support from slow seed sales from farmers.

Rapeseed oil demand slows

S&P Global analysts project EU rapeseed oil output at 10.76 million mt in 2023-24, up from 10.91 million mt in 2022-23, and Ukrainian rapeseed oil production at 120,000 mt, up 62% on the year.

Demand for rapeseed oil has slowed due to high stockpiles in China, one of the largest buyers of rapeseed oil, and poorer biodiesel margins, for which rapeseed oil is a feedstock for.

China imported 233,000 mt of rapeseed oil in October, 64% higher on the month, news website GrainTrade said. Rapeseed oil prices could fall in the coming months due to slowing Chinese demand, higher canola supplies from Australia's harvest and if soybean prospects improve in South America.

Global rapeseed oil consumption in 2023 is estimated to have risen 11% on the year to 29.8 million mt, according to Oil World. India and China were the largest buyers of rapeseed oil for the food industry, while North America and the EU were the largest buyers for the biodiesel industry and this trend could persist into 2024.

Soybean oil outlook

Soybean supplies from major producers Argentina and Brazil are expected to tighten in 2024, led by biofuel usage and policy uncertainty.

Brazil is scheduled to increase biodiesel blending to 13% in April 2024, while National Agency of Petroleum, Gas and Biofuels (ANP) approved biodiesel imports on Nov. 23. This is expected to shore up soybean oil demand for regional biodiesel production, limiting the supplies available for export to the EU.

S&P Global analysts estimate Brazil's 2023-24 soybean crop at a historical high of 56.1 million mt, up 3.7% on the year. Consequently, soybean oil output could reach a record 11.26 million mt, up from 10.72 million mt, with 5.079 million mt likely to be used for biodiesel production, a 14% jump on the year, according to S&P Global analysts.

Policy uncertainty in Argentina persists. In a span of three days from Dec. 12-14, the newly elected Milei government banned agricultural export registrations, devalued the peso by 54% in a first batch of measures against hyperinflation, before reopening the registrations.

Palm oil outlook

S&P Global analysts estimate 2023-24 Indonesian palm oil production at 49.8 million mt, down 1.9% on the year, while exports could fall 11% to 25 million mt. Malaysian palm oil output in 2023-24 is projected to rise 7.3% to 19.74 million mt. Weather agencies predict that a mild-to-severe El Nino weather pattern in 2024 may result in lower precipitation in Southeast Asia.

"Improved labor situation as local harvesters returned mid-year along with the fact that Malaysian rains have been better than Indonesia in recent months will boost the country palm output," S&P Global analyst Rob Hatchett said.

He also pointed out that El Nino has been moderate in recent weeks, which should minimize the negative impact on Malaysia-Indonesia palm production.