Your Bi-weekly update on edible oils & fats by Aveno

Although in the past season consumption got hit by a double whammy, i.e., lockdowns and high prices, seemingly demand losses were unable to turn around the bullish trend. For this to happen we need higher production and stock levels.

Last season, the only demand growth came from China that increased its oils & fats consumption by 1.5Mmt. And high prices curbed the appetite from the biodiesel industry in several countries.

Today prices fluctuate between pressure from upcoming productions, slower domestic demand in the U.S. and still bigger than expected losses in Canada, delayed sunflower seed harvest in the black sea region plus looming demand from India and others.

To slow down, to stop and to turn around the upward trend in oil prices this season, palm oil production and Brazilian soybeans production (and consequently higher stock levels) will be key. 

There is much speculation on U.S. biofuel mandates. Though the Biden administration announced doubling the money spent on fighting climate change, they are considering big cuts to biofuel blending requirements. The U.S. Renewable Fuel Standard (policy intended to help farmers and reduce the need for petroleum imports), demands petroleum refiners to blend biofuels in their fuels, or to buy tradeable credits, known as RINs, from those that do. This includes the ethanol made from corn that goes into gasoline. So, this is a very big issue in the U.S. of A.!

Nevertheless, huge investments were and are being made to produce biodiesel and sustainable aviation fuels. Time will tell.

But OIL WORLD analysts expect that in the current season, global palm oil production will grow from 75.8Mmt last season to 79.8Mmt. We already saw growing supplies from the two largest producers, Indonesia and Malaysia, and the latter confirmed it will allow over 30.000 migrant laborers to enter the country to help harvest fruit bunches. If stocks keep growing in OND this may start weighing on the total oil complex. But we have to remember that February is the lowest production month in the cycle and we are now about over the peak.

Rapeseed oil

The upward crop revisions in EU, China and Australia vs. the bigger than anticipated Canadian crop loss will result in 4.5 to 5 million ton less rapeseed. This, on top of the low ending stocks, means at least 6.5Mmt less seed supply vs. last season.

Oil buyers face an unpredictable and challenging end of season. The MJJ and ASO positions will become very technical. Price wise old crop will probably make a huge premium over new crop and no one will want to carry expensive old crop seed or oil into the new crop year! If there is anything left to carry...

It may be that the present harvest brings some price relief on nearby. If crush margins are good, a lot of oil will come on the market. And more uncertainty was added last week when Evonik declared force majeure on deliveries of sodium methylate (key catalyst for biodiesel production). Unexpected technical issues severely affected production which may result in delivery delays and/or in a reduction of delivered methylate volumes. Evonik’s force majeure came after the BASF announcement in August about a fire at its plant in Ludwigshafen. The two companies are the main suppliers in EU and this may lead to lower biodiesel production, unless the supply problems of methylates get solved quickly.

Sunflower seed oil

The Russian production of sun seeds will be lower than expected but Ukraine’s will be higher. Globally, analysts still see 7Mmt more seed coming from the fields than last season. 

 

Low ending stocks, delayed harvesting in the Black Sea region and little selling interest supports sun seed prices. The market has low forward coverage as it is waiting for prices to drop further. All this, delays a significant price drop. As sun oil is to absorb a part of demand of other oils (rape), sellers remain cautious.

USD and mineral oil. 

The euro depreciated towards $1.17 on growing risk aversion and fears of slowing global economic growth.

 

Wednesday, brent traded above $75 on global demand recovering and inventories dropping. The shortfall of natural gas also leads to expectations of higher demand for other fuels when gas prices are at record highs this time of the year.

In the U.S. heating oil prices were up as petroleum production did not yet normalize after hurricane Ida. Producers are working to bring back production: about 17% of the Gulf ‘s oil and 25% of natural gas production is still off. Shell, the largest Gulf of Mexico producer, thinks the damages will limit production till early next year.

 

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