ANALYSIS: High prices, logistics leave Ukraine sunoil buyers refusing deals

Buyers of Ukrainian sunflower oil are said to be refusing to take delivery on some contractually agreed volumes after prices fell significantly and in the face of high stocks and reduced demand from major importers, trade sources have told Agricensus.

The dynamic threatens to be another blow to an industry already left reeling by the Russian invasion of the country and a lack of access to export markets amid blockade of Ukraine's deep water ports.

Buyers from countries such as Poland, Italy and China are said to have refused Ukrainian sunflower oil, citing a significant reduction in prices for the oil versus the price agreed at the time of the contract's completion.

"There are buyers in Europe who still trade the old fashioned way, especially if the contract is not signed. They do not know about the existence of English law," a trade source based in Ukraine told Agricensus.

English law is often used to underpin international trade agreements. 

Prices

According to market sources, prices have fallen by an average of $300-400/mt for Italy and China and up to $200/mt for Poland.

According to Agricensus monitoring data, in June sunflower oil based on DAP Poland traded at $1,450/mt for July delivery, while this week Polish buying ideas were heard in the range of $1,250-1,300/mt DAP - a 12% decline.

Chinese buyers at press time were voicing the idea of ​​buying at prices around $1,450/mt CIF for July-August shipment, while oil was trading at $1,750/mt CIF China in June, according to market sources - a 17% fall.

In June, Ukrainian sunflower oil based on CIF Italy for July delivery traded at prices in the range of €1,600-1,630/mt, but there was a shortage of buyers this week.

Polish buyers have cited two main reasons for their refusal to fulfill purchasing obligations.

The main reason is the price that buyers for deals agreed earlier is now considered high at the time of delivery and are simply refusing to accept the contract.

The second reason for the refusal is the technical unavailability of European buyers for the acceptance, shipment, and storage of sunflower oil, the lack of the required amount of transport, and a lack of infrastructure availability as a whole.

Logistics

According to an official source, as of July 12, 587 wagons with sunflower oil were said to be moving to the western border, the equivalent of 36,352 tons of sunflower oil.

At the same time, the queue of waiting wagons on the railway, both agricultural and other goods, ranges from 18,000 to 40,000 wagons, according to various estimates of logisticians of Ukrainian companies.

"It doesn’t matter what the wagon is carrying. It is important where it is going. If there are several different types of cargoes at one crossing point, it does not matter what they have. They’ll be behind the lines anyway," a Ukrainian trader told Agricensus.

Queues stretching for several kilometers have been reported and support reports that the delivery of products to the destination can exceed 40 days in some cases.

The consequences of a decrease in the export price level for sunflower oil and the refusal to fulfill obligations under contracts from some individual buyers alongside a backdrop of overstocking of storage facilities with sunflower meal has forced some processors to halt operations at some crushers.

Export

According to customs statistics, from March to June of the 2021/22 season, 125,571 tons of sunflower oil were sold in the direction of Poland, which is more than 8 times higher than the level of the previous year for the same period.

Sunflower sales to China during the March-June 2021/22 marketing year fell sharply to 13,387 tonnes - a factor of 18 versus last year's performance, according to customs data.

Italy has also reduced its imports of Ukrainian sunflower oil during the period under review by 2.2 times to 27,423 tons compared to the previous season.