Cheaper cousins pull down sunflower oil

Higher output and falling prices of other cooking oils have weighed on sunoil

If you love fried food, you can rejoice in the fact that the price of cooking oil has been slipping since mid-2013. The price of refined sunflower oil (Source: Solvent Extractors Association of India), a popular cooking medium, ruled at ₹63,000 a tonne in end-March 2015.

This was 10 per cent lower than the same month last year. Prices have reversed trend in the last two years. Between March 2009 and August 2013, prices of refined sunflower oil soared, rising 87 per cent from ₹45,000 levels to ₹84,000 a tonne. They have since corrected by 25 per cent.

Global prices of sunflower oil have corrected much more steeply than domestic prices. They have been on a relentless downward trajectory since mid-2011. Global prices have tanked from $1,700 per tonne in June 2011, to under $900 by March 2015, with the fall punctuated by hardly any intermittent rally.

Global prices of sunflower oil have responded both to rising production of sunflower seed and to bearish trends in other vegetable oils. Statistics from Oil World and USDA show that between 2010-11 and 2013-14 (October to September), world crushing volumes of sunflower seed rose from 30 million tonnes to 38 million tonnes, boosting sunoil production from 4.8 million tonnes to 8.1 million tonnes.

Sharply higher sunflower output in Ukraine and Russia (the world’s largest producers) and European Union contributed much of this spike. But with consumption failing to keep pace, global inventories have mounted and pressured prices.

At the same time, sharp price increases in the output of competing cooking oils such as palm oil and soyabean oil have also added to the downward pressure on sunoil too. Globally, some consumers use sunflower oil, soyabean oil and palm oil interchangeably to meet their cooking needs.

They dynamically shift between them based on the price differentials between palm oil (the cheapest oil) and other soft oils such as sunflower and soyabean. In the last year or so, a record US harvest of soyabean has triggered a meltdown in soyabean oil prices. This has had its impact on the entire oil complex, including sunflower oil.

The meltdown in global crude oil prices has had an indirect impact on cooking oils too. What is the link? With cooking oils such as palm oil used in bio-ethanol production, the fall in crude oil prices has led to lower diversion of food crops to bio-ethanol. This has contributed to excess supplies in the market.

Changing import mix

Going forward, fundamental factors point to tighter sunflower oil supplies in the crop year 2014-15 (ending September 2015).

Output estimates for the year have been progressively trimmed due to a lower crop expected in Ukraine and Russia, and crushing volumes are expected to fall by about 4 per cent for the season after many seasons of gains. But prices are yet to respond to these trends because alternative cooking oils such as soyabean and palm oil continue to trade cheap.

In contrast to the global situation, oilseed production in India has consistently failed to keep pace with burgeoning demand. Therefore, Indian imports of cooking oils have shot through the roof in the last five years.

Between 2010-11 and 2013-14, total imports shot up from about 84 lakh tonnes to 116 lakh tonnes, registering a 40 per cent jump. In the current oil year (November 2014 to February 2015), domestic shortages have sparked a 23 per cent jump in cooking oil imports by volume.

But with soyabean and sunflower oil turning cheaper in global markets, the import mix has changed significantly.

While palm oil made up three-fourths of the total imports in the some months last year, this year soft oils such as soyabean and sunflower have been in greater demand, accounting for a third of all imports.

With sunflower acreage down sharply both in the kharif and rabi seasons this year, the forecast for domestic prices would normally be bullish. But with imports flooding in and rival oils such as soyabean and palm oil trading cheaper, Indian consumer can probably look forward to a few more months of benign sunflower oil prices.

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