Emerging markets in countries like China and India are changing the dynamics of the global vegetable oils market.
Increasing demand in emerging market regions looks as though it will be able to offset signs of stagnation, and even decline, in Europe’s requirements, and it is anticipated that these emerging markets will continue to grow steadily. At the same time, the continued demand for vegetable oils has the potential to increase pressure on the production and supply of oils such as soy and palm, driving up prices and reducing availability.
Markets are already innovating in response to demand/availability issues. Recently, product substitution has become an acceptable way to achieve price stability. For example, reduced supply levels of coconut oil resulted in higher prices. To mitigate that volatility and the knock-on effect to food prices, food manufacturers have started to use substitutes for coconut oil in certain food applications.
Price Rises on Growing Pains
Pressure on production, as a result of drought damage and reduced demand for rapeseed oil, has contributed to price rises for vegetable oils generally. In 2015/16, soya and sunflower oils are expected to be the major sources of further growth in this market.
Reductions in palm oil output could be even more severe. Drought conditions in South East Asia are impacting growth and production. However, soya oil production could turn out somewhat higher than assumed if crushers manage to sell the additional meal supplies.
Main Product Market Developments and Trends
Soya Oil: Soya oil is expected to account for most of the demand growth in 2015/16. Soybean supplies are ample, but production can be increased sufficiently only if soya meal prices are low enough to boost demand. Argentina will play a key role this season, with an expected boost in soya oil output, however, in the US and Brazil only moderate increases are expected. Elsewhere, production in the EU increased in the first half of this season, and while India’s soya oil output is down, the country may see some growth in imports.
Palm Oil: Adverse weather conditions and the El Nino phenomenon damaged palm trees across the growing areas of Malaysia (mainly in Sabah and Sarawak) and Indonesia (mainly in Sumatra and Kalimantan). As a result, palm oil production will be reduced. Following reduced yields in 2015, 2016 will seem a very harsh year.
Sunflower Oil: 2015/16 is expected to be the first season in which bumper production and exports of sunflower oil from the Commonwealth of Independent States (CIS) countries will not keep sunflower oil prices at a discount to soya oil, and in some locations at a discount to rapeseed oil. This stems from the relative resilience of sunflower oil prices to developments in the global energy market and strong import demand from the EU, China and other countries.
Rapeseed Oil: The competitiveness of rapeseed oil has improved significantly. The reasons for the relative price weakness of rapeseed oil lie mainly on the demand side. In the European biofuel sector, the biggest consumer of rapeseed oil in the EU, less expensive feedstock such as used cooking oil garnered market share from rapeseed oil owing to the pressure on profit margins from low crude mineral oil prices. However, the latest price correction has improved the attractiveness of rapeseed oil as an energy source. Growing Canadian exports may have to find additional outlets elsewhere. The ongoing downtrend of Chinese rapeseed production will contribute to a further setback of rapeseed oil production in the country and consumption of rapeseed oil in India may also decline this season.
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