Новини    01 листопада 2015 22:58

Sunflower oil producers are under a double blow

Sunflower oil producers are under a double blow: international prices for the product are falling and farmers are reluctant to sell seed in anticipation of price rises. The only hope for the producing companies is new markets and new raw materials.

The production of sunflower oil is still one of the most attractive segments in the agricultural market. But this year refiners will reduce earnings. Ukrainian oil production mills plan to refine a record 4.7 million tons of oil, which will not be easy to sell profitably. The reason is global market conditions. During several years of overproduction the main sunflower oil consumers agglomerated record sunflower oil reserves — about 181 million tons, and reduced the volume of their purchases drastically. Another factor that affects sunflower oil cost is the decline in crude oil prices. The price of black gold fell on the news that trade sanctions against Iran, a major global crude oil trader, will be lifted this year. Cheap crude oil led to a drop in the profitability of biodiesel production, which in turn reduced the demand for sunflower oil — the main ingredient of this fuel.

Logically, declining end product prices have led to cheaper raw material. “Companies that supply sunflower to refiners decided to put seed on hold in their vaults. They hope that prices will go up”, says Dmitri Gorshunov, CEO at Bunge Ukraine. Suppliers’ position is understandable. Ukraine’s largest oil and fat holdings, despite the apparent oil overproduction, continue to increase the capacity of their factories. For example, this year Viacheslav Petrishche’s Allseeds launched a new oil extraction plant with the refining capacity of 700,000 tons of sunflower seeds per year. Victor Ponomarchuk, founder of ViOil (Vinnitsa Oil and Fat Plant) plans to increase its production next year. Companies cannot stop – their owners will be looking for opportunities to load their plants with raw materials up to the limit in any case.

In September the crisis was seemingly over — the world oil prices went up 8%. However, the market players are confident that this rise will not last long. According to Igor Gadomsky, commercial director at ViOil, the jump has been related to poor sunflower harvests because of drought in Romania, Turkey and Serbia. “Fearing of shortages and price hikes, several countries are actively buying sunflower oil now. But we see the falling demand on the part of major oil consumers — China and India”, he says.

What to do? The refiners hope to get into Iran’s market, which is expected to be cleared from the U.S. trade sanctions by the end of the year. During last two years Ukrainian companies supplied oil to Iran through intermediaries, but now they have a chance to implement direct deliveries. According to Gadomsky, around 300,000 tons of oil can be supplied to this country annually. Still, Iranian volumes are a drop in the sea of Ukrainian oil export. Also, the refiners are looking for an alternative to sunflower seeds and are ready to load their plants with soybeans and rapeseed. According to Gadomsky, ViOil has already processed the first batch of rapeseed and is ready to start soybeans processing in winter. Kernel Group plans to operate the same way this season.

Text: Oksana Pirozhok

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