ANALYSIS: Black Sea sunoil seeks alternative routes as Asian demand falters

9 Feb 2024 | Anna Platonova

Black Sea sellers of sunoil are being forced to adjust their trade flows and look for new export markets, after demand from key Asia-based importing nations has dried up amid high stocks, national holidays and increased competition. 

One of the biggest importers, China, has reported high stocks of sunflower oil, putting pressure on demand during a national holiday period, while India has increased its purchases of sunflower oil from Argentina in a bid to minimize the supply disruption risks associated with the purchase of Black Sea sunflower oil. 

Exporters in both Russia and Ukraine, the two largest producers and exporters in the world, have been exposed to increased maritime risk in the Black Sea and now in the Red Sea as well.

That has increased costs in the key transit route connecting them to the major destination markets, and made Black Sea sunflower oil uncompetitive on price and complicated logistics.

According to the Indian solvents association, SEA, between November 1, 2023 and January 31, 2024, India bought 119,432 mt of Argentine sunflower oil, more than 70% higher than the same period of the previous year.

Even though Argentinean oil is inferior in quality and quantity to Black Sea oil, Indian buyers at this stage have shown a preference for it, bolstered by worries over potential delays to logistics and increased costs.

“India is buying Argentine origin, but not more than Black Sea sunflower oil,” one trader based in India told Agricensus, with a second source saying it was a “good advantage for Argentina.” 

This is due to the logistics component, the risks prevailing in the Black Sea region and the Red Sea, as well as the lower cost of the South American product.

The cost of freight from Argentina to India is on average 20% lower than freight from the Black Sea region and, according to estimates from various sources, is $83-90 CIF India.

At the same time, the cost of freighting sunflower oil from the Black Sea region to India varies between $100-120 CIF India, according to various estimates from market sources.

In addition, Argentine sunflower oil is on average $20/mt more expensive than Black Sea oil.

This week, trades were heard for Argentine sunflower oil at $910/mt CIF India for delivery in February and $900/mt for delivery in March-April, while sunflower oil from the Black Sea region is offered at prices in the range of $920-940/mt CIF India, depending on the month supplies.

And don't forget about soybean oil - which Indian importers will turn to as an alternative product when prices allow - given the narrowing spread between the two oils, it is becoming more attractive and may play into the dynamic.

According to Agricensus monitoring data, soybean oil for delivery in April is offered at $920/mt CNF India, while sunflower oil for delivery in February-March is offered at $940/mt CIF India.

Chinese buyers have not been active for more than a month, as sunflower oil stocks in the country - although declining week-on-week remain still high compared to the previous season and were estimated by Chinese sources at 340,000 mt at the end of January 2024.

Closer to home

The decrease in sales of Black Sea sunflower oil to Asian countries has caused an increase in supplies of Ukrainian and Russian sunflower oil into local destination markets like Turkey for both origins, and into EU countries for Ukrainian supply.

High offers from both countries are increasing competition for the Turkish market and putting even more pressure on prices in a race to the bottom that may keep buyers out as the anticipate further falls.

Over the past month, prices for sunflower oil basis CIF Mersin have fallen by an average of $35-40/mt, or 4.5%.

Offer levels are $860-865/mt CIF Mersin for delivery in March, while buyers have the opportunity to choose cheaper offers and have gradually reduced prices to $845-850/mt CIF Mersin, sharpening competition between the Black Sea rivals.

“We are seeing quite a lot of cheaper Russian offers for delivery in March, so Ukrainian sellers should think about offer prices,” said one Turkish broker.

At the same time, Turkish demand is not able to absorb all the proposed volumes, given that February is almost completely covered, and March is more than half covered.

European demand is also limited in anticipation of lower prices.

“Almost no one is buying. We mainly see sellers of sunflower oil, but a very limited number of buyers,” said the Bulgarian broker.