Cooking oils in ‘perfect storm’ as war slashes Black Sea exports

Cooking oils face “a perfect storm” with as much as 60% of sunflower oil exports from the Black Sea region delayed in this marketing year because of Russia’s invasion of Ukraine, according to James Fry, a veteran analyst and chairperson of consultancy LMC International. 

Sunflower and corn plantings, which should take place soon, are also likely to be smaller in Ukraine and Russia this year, Fry said in remarks prepared for a conference.

A month ago the company expected sunflower oil exports from the Black Sea to increase by more than 2-million tonnes to 13.5-million tonnes in 2021-2022, Fry said, adding the question is how much of that will be lost because of the war.

“Stocks and export supplies of oils are down. The cupboard is bare. There is no alternative to letting high prices do the job of rationing demand to balance the market.”

Crude palm oil for local delivery in Malaysia is expected to trade from 6,600 ringgit (roughly R23,900) to 8,100 ringgit (roughly R29,300) a tonne until July. Most active futures in Kuala Lumpur were at about 6,823 ringgit (roughly R24,700) on Wednesday.

Combined palm oil shipments from Southeast Asia will not surpass volumes in 2020 until the third quarter, Fry said. On Monday, he forecast Malaysian output will rise about 3-4% this year because of a labour shortage, while the “real crunch” in cooking oil supplies will come in the next six months.

World soybean oil shipments are likely to decline in 2021-2022 because of higher demand in exporting countries. That comes as the estimated expansion in this year’s soybean crush has been cut to 4.5-million tonnes from 16-million tonnes.

Inflation will get worse and central banks may raise interest rates to rein in economic activity and limit demand for reduced supplies of food and fuel. While the best short-term hope for higher exports is for top producer Indonesia to end its shipment quotas or briefly cut its B30 biodiesel mandate, Fry says it’s doubtful such a reduction will happen. 

Prices of palm oil, the most consumed edible oil, will eventually decline as supply builds up and demand is squeezed in the second half of the year. That means crude palm oil for local delivery in Malaysia will drop to a range of 6,200 ringgit (roughly R22,400) to 7,000 ringgit (roughly R25,300) a tonne.

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