Blockade of Ukrainian Ports Will Affect the Vegetable Oil Market: Possible Scenarios

This was reported by Svitlana Kyrychok, vegetable oil market analyst at APK-Inform.

She noted that the russian product, which traditionally competed through a lower price, is now trading at a premium to the Ukrainian product. Ukrainian oil for August is being offered at prices of $1,380–1,400/t FOB, while the Russian product is offered at $1,400–1,410/t FOB.

«At the same time, if problems with maritime logistics persist into autumn, the main impact will fall primarily not on the global market, but on sunflower producers in Ukraine and russia,» the expert predicts.

Ukraine is expected to harvest 13.4 million tonnes of sunflower this year, which could be a three-year high. If maritime logistics are not restored before the new harvest begins arriving actively on the market, the domestic market risks facing a surplus of raw materials precisely when opportunities to sell oil will be limited, Svitlana Kyrychok explains.

To minimise risks, in her opinion, plants will not rush to buy sunflower or will offer low prices. In July and early August, Ukrainian sunflower had already fallen in price by UAH 3,000–5,000/t, while bid prices for the new harvest were quoted at UAH 10,000/t below actual purchase prices.

«A similar situation could potentially arise in russia: a record harvest estimated at more than 20 million tonnes will also face limited export opportunities,» the expert believes.

According to preliminary estimates, the western border, rail and road crossings, as well as the Danube ports of Izmail and Reni, could potentially support oil exports of 350–500 thousand tonnes per month under favourable conditions. Combined oil exports from Ukraine and russia in August may amount to no more than 350 thousand tonnes, compared with 579 thousand tonnes in July.

Svitlana Kyrychok also outlined possible scenarios for developments in the Black Sea market:

• In the short term, reduced supplies from Ukraine and russia will create a shortage of sunflower oil and provide support for prices. However, if the logistics problem persists for several months, the effect could reverse.
• The most optimistic scenario is an agreement between the parties and the resumption of port operations in the coming months. The accumulated volume of new-crop raw materials on the domestic market will be quickly sold, the logistics risk premium will disappear, and Ukraine and russia will be able to enter the new season normally.
• A less optimistic scenario is the partial operation of ports and increased pressure on alternative routes, but this option could be quite risky. A global shortage may not emerge, but the logistics premium for suppliers will remain. In addition, importers will gradually replace sunflower oil with alternative products.
• The most critical scenario is that the ports remain inaccessible for an extended period. Ukraine and russia will be unable to fully realise the potential of the new harvest through traditional channels. Domestic sunflower prices will come under strong pressure, while processors will be forced to operate intermittently and adapt to the operation of alternative routes.

«Thus, over the next 1–2 months, the Black Sea crisis will not create a global shortage of sunflower oil, but the situation will change with the new season, while importers will once again have an incentive to diversify their purchases more quickly,» Svitlana Kyrychok concluded.