Sunoil price outlook mixed as supply clashes with demand: Analysts

Division over the prospects for Indian sunoil demand means the future direction for Black Sea sunoil prices in the coming months is unclear, with market analysts speaking at the SEA Globoil Webinar disagreeing on key aspects of their outlooks.  

Ukrainian sunoil prices hit a seven-year high in mid-September as traders were caught short by a delayed and smaller-than-expected sunseed crop, forcing them to scramble to cover and propelling prices higher.

While prices have since cooled from those highs, they have rallied again this week as some farmers were forced to default on sunseed deliveries due to their smaller crops.

“The biggest bullish surprise in the past four weeks has been in sunflower seed. Crops have been much lower than anticipated. In the Black Sea region, we had massive losses, severe dryness, small kernel sizes. The oil content is down,” Thomas Mielke, CEO of German researcher Oil World told the online conference.

“In the Black Sea region - Russia, Ukraine, Bulgaria, Romania - we may be losing 5 million mt of sunflower seed. This is a big change,” Mielke said, adding that world supplies of sunoil will decline by at least 1.5 million mt.

“We therefore need higher prices and premiums relative to other oils,” he concluded.

Oil World estimates Ukrainian sunoil prices will average $980/mt FOB during the January-June period in 2021, close to the current price levels of $960/mt, while it estimates Argentine soyoil prices will average $820/mt over the same period – some $160/mt cheaper.

However, Dorab Mistry, market analyst with Godrej International, confirmed his view that tighter global supplies of the oilseed are due to dry weather late in the season, and said that the price rally was “overdone” as Indian demand is expected to fall.

“My friends in Ukraine and Russia got carried away. Yes, there is a crop problem. Yes, the crop is smaller than expected but the demand for sunoil last year came because sunoil was at a discount to soybean oil. The demand for sunoil is not as inelastic as you think,” Mistry said.

Ukrainian sunoil on a landed CIF India basis hit a low of minus $20/mt versus Argentine soyoil at the end of 2019 and surged to over $200/mt last month – a multi-year high.

“Yes, sunoil is a premium [quality] oil, but 50% of its greatest fans [consumers] are in developed regions, so for that reason sunoil is very overdone,” Mistry said.

“We will see in four months’ time that sunoil will have destroyed a lot of demand. Already India which normally imports 200,000-230,000 mt is going to import 130-140,000 mt.”

“I believe sunoil is playing with fire,” Mistry concluded.