Experts predict a correction in vegetable oil prices in the second half of the season

The global vegetable oil market at the end of February is under the influence of geopolitical signals and uneven recovery in demand. The energy market is watching the relations between the US and Iran, and oil prices are reacting to political expectations and the level of stocks. According to UkrAgroConsult, the markets are not worried about a shortage of supply, but about a change in the timing of purchases.

 

The price ratios between the main types of oils continue to adjust. Sunflower oil remains the most expensive, but the premium relative to palm and soybean oil has decreased to $288/t and $152/t, respectively, indicating a change in buyer strategies and increased competition between oils.

 

Chinese New Year and Ramadan reduced demand for essential oils, and importers reduced inventories in anticipation of new cheap supply from South America.

 

According to the geography of exports, the Russian Federation supplies products mainly to India, while Ukraine focuses on the European market, where demand remains more stable. Such differentiation softens price fluctuations for Ukrainian exporters, according to UkrAgroConsult.

 

Expansion of processing and value-added production capacity increases competition for raw materials, which reduces profitability and changes the market's response to price spikes.

 

Over the past two weeks, buyers have sharply reduced their demand for sunflower oil in anticipation of a price decline that has already begun. Experts cite several reasons for this situation.

 

The sharp increase in soybean oil prices in Chicago had almost no impact on the physical market, as it was fully offset by a decrease in premiums, so actual prices did not change.

 

At the same time, sunflower oil stocks in Ukraine increased in February due to reduced shipments and almost non-existent demand from Europe. For the first time in the last three months, Ukrainian processors began to actively sell oil on a CIF Turkey basis, while Russian exporters are conducting cautious sales due to the risks of an increase in export duties in March by another $20-30/t and logistics complications due to the ice situation in the Baltic Sea and on the Don and stormy weather in the eastern Black Sea.

 

The Argentine authorities announced that the final area under sunflower for the new crop has increased by 500 thousand hectares, which will allow production to increase by 1.6 million tons to a record 7.7 million tons and partially compensate for crop losses in the Black Sea region.

 

Eastern European countries have already contracted over 500,000 tons of Argentine sunflower, and the oil produced from it will be of Black Sea origin and will compete with Ukrainian and Russian products in the markets of Turkey and India, which will contribute to increasing supplies from Argentina.

 

It is clear that under the pressure of such fundamental factors, oil prices will continue to decline.

 

At the same time, the factors supporting prices remain the very low margin of seed processing in Ukraine and the Russian Federation, as well as a possible increase in the export duty on Russian oil.

 

Despite the lower sunflower harvest in Ukraine, seed residues in the second half of the processing season will remain at the level of last year, since in the first half of the season, sunflower processing volumes were 1 million tons lower than last year due to factories switching to soybeans and rapeseed.

 

So the final months of the season may bring price surprises, especially given forecasts of higher rapeseed prices in the EU after Canada began reorienting its canola exports from Europe to China.