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Global shortage of sunflower, rapeseed oils to lead to more EU demand of CPO from Malaysia, Indonesia

The shortage of sunflower and rapeseed oils, in which conflicting countries Russia and Ukraine account for nearly 75 per cent of the global exports, will make the European Union relook at Malaysia and Indonesia for more sustainable palm oil. STR/ADZLAN SI

KUALA LUMPUR: The shortage of sunflower and rapeseed oils, in which conflicting countries Russia and Ukraine account for nearly 75 per cent of the global exports, will make the European Union relook at Malaysia and Indonesia for more sustainable palm oil.

Industry observers, however, said low Malaysian palm oil production might limit its ability to fulfill the potential increased demand from the EU.

They added that the ongoing Russia-Ukraine conflict had led to the closure of some sunflower crushing plants and ports in Ukraine, disrupting production and exports of sunflower oil and meal.

This represented a significant disruption to the global edible oils trade flows as the market was looking forward to an increase in sunflower oil exports from Ukraine to partially relieve the current tight supplies in global edible oil markets.

Palm Oil Analytics owner and co-founder Dr Sathia Varqa said the EU might emerge as the second largest buyer from Malaysia in 2022 displacing China.

"India remains number one. But it's unlikely the EU will reverse its decision on the ban of palm based biodiesel imports into the EU by the set deadline of 2030.

"Indonesia and Malaysia have separate cases filed with the World Trade Organisation (WTO) to reverse the EU Renewable Energy Directive (RED II) ruling. If there is reversal it will come from WTO ruling," he told the New Straits Times.

CGS-CIMB Securities Sdn Bhd head of research Ivy Ng said in view of the closure of crush operations and ports in Ukraine, buyers would need to scout elsewhere to temporarily fill the gap in supply – mainly palm oil and soybean oil.

Uncertainties also remained over how long it would take for Ukraine's exports to resume and if there would be trade sanctions on Russia's exports, Ng added.

However, she said panic buying by consumers to cover the temporary shortfall in edible oil supplies from Ukraine was likely to continue until the situation improved.

"Palm oil and soya oil are likely to benefit from this trend. As such, crude palm oil (CPO) prices in the near term are likely to stay high and above CGS-CIMB's average CPO price forecast of RM4,100 per tonne for 2022.

"The current high prices may correct significantly if a resolution is reached and edible oil trades resume. Planters that sell mostly spot, like Hap Seng Plantation Holdings Bhd, Ta Ann Holdings Bhd and most Indonesian planters are likely to benefit from the spike in CPO prices," she added.

Malaysian Palm Oil Board director-general Dr Ahmad Parveez Ghulam Kadir said the shortage of sunflower oil supply from the Black Sea region had increased demand for palm oil from Malaysia and Indonesia as well as soyabean oil to fill the demand-supply gap.

"In term of supply availability, the low Malaysian palm oil production may limit its ability to fulfil the increased demand of palm oil from the EU as there is continued demand from other importing countries such as India, China and Turkey," he said.

Ahmed Parveez told the NST that the EU was imposing barriers on palm oil imports under the EU REDII.

The barriers, which are perceived as discrimination against palm oil, are applied for biodiesel use. Meanwhile, palm oil imports for food and other non-food applications are not subject to such barriers.

He said in view of the tight global supply of sunflower oil caused by the ongoing Russia-Ukraine conflict coupled with the insufficient supply of soyabean oil from South America, the need for palm oil by the European countries to fill the demand-supply gap left by sunflower oil was indisputable.

"This is to ensure the continues supply of vegetable oil to meet the demand of the countries. However, in relation to the barriers imposed on palm oil, it is too early to indicate whether the current supply situation of vegetable oils could influence the EU to re-evaluate its discriminatory policy on palm oil," he said, when asked on the likelihood for European nations to lift the EU REDII ban on palm oil from Malaysia.

He also said the Malaysia-delivered CPO price had hit the highest level of RM8,076.50 per tonne on March 2 primarily due to the Russia-Ukraine conflict.

On average, the Malaysian CPO prices for March 2022 stood at RM6,867.00, the highest record monthly prices thus far.

"With the current development of the Russia-Ukraine conflict and its impact on the global sunflower oil supply, especially to the EU and India, demand for palm oil is expected to increase in the coming months.

"On the supply side, CPO production is expected to show some recovery, especially in the second and third quarter of 2022 to narrow down the demand-supply gap of palm oil. Thus, the CPO price is expected to gradually stabilise as early as May 2022," Ahmad Parveez said.

https://www.nst.com.my/business/2022/04/787699/global-shortage-sunflower-rapeseed-oils-lead-more-eu-demand-cpo-malaysia

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