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Commodities 2022: European vegetable oil markets expecting production rebound in the year

Highlights

Ukraine sunflower oil exports to benefit from Russian tax

La Nina could hamper supplies of palm oil to Europe

The Black Sea sunflower oil market faces challenges in 2022 as farmers hold onto seed stocks in the first half of the year, but record sunflower oil production is still expected.

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India -- one of the main global importers -- is set to increase their vegetable oil imports to 14 million mt in the marketing year of 2021-2022, largely driven by sunflower oil. Sunflower oil imports are expected to rise to 2.4 million mt in 2021-22 from an estimated 1.88 million mt in 2020-21, resulting from steep cuts in import duties and improve global production. India has reduced import taxes on edible oils on multiple occasions over the course of 2021 to combat rising international prices.

Initial estimations for the sunflower oil harvest in Ukraine were not promising, as expectations arose of a reduction in the forecast yield caused by a hot, dry summer in the Black Sea region will dampen further supply in the market. Despite this, a record 7.1 million mt of sunflower oil is expected to be produced in the Ukraine in 2021-2022, up 23% from 2020-2021. Resulting from the rebound in prices in 2021, it is expected that in general area planted will be kept high as prices continue to remain resistant to bearish factors.

Following a bullish year in the European crude palm oil market -- as prices have increased from $1045/mt to record highs of $1377.50/mt -- market participants have expressed prices may not ease until the end of the first quarter, resulting from an unresolved labor shortage in Malaysia in combination with high duties in rival producer Indonesia.

Explore this topic: Commodities 2022

European palm oil supplies to depend on Asia

The European palm oil market will depend on whether labor shortages, COVID-19 restrictions and weather patterns impact supplies available from major suppliers in Asia.

Palm oil production is currently likely to increase in 2022 as pandemic restrictions unwind. Malaysian work visas are on the increase to curb reduced yields this year, in the hope that yields become more normalized in 2022. It is to be expected that over 32,000 migrant workers will enter Malaysia in 2022 following government efforts to combat the labor shortages. Despite this, announcements made on Nov. 30 suggest that this labor will not be available until the end of March 2022. Problematically, the forecast La Niña may bring heavy rains to South-East Asia, dampening production prospects in the region.

Contributing further to the bullish outlook, the hope of reopening economies as pandemic-related restrictions begin to ease increasing demand for palm oil-based products. World production of palm oil has gradually recovered by 1.7 million mt in 2020-2021, with Oil World forecasting a 3.5-3.8 million mt increase this season. Further forecasts by Oil World suggest a 1.5 million mt increase in global palm oil exports, while stocks are set to reduce by 1.3 million mt. However, recent news of the emerging omicron variant has poised problems across global markets, creating wide-spread hesitation.