04.10.2021 (www.hellenicshippingnews.com) - The sudden rise in demand for biofuels is causing supply tightness in the soybean oil market, which is likely to persist until 2022. Alternatives such as sunflower oil will benefit from this situation.
The year 2021 has been turbulent for the soybean oil market due to the increasing emphasis on biofuels from the US to Brazil and Argentina. These countries are using soybean oil as the main feedstock to produce biodiesel, squeezing its availability as an edible oil for major importers like India and China. Meanwhile, the edible oil demand of these Asian countries is expected to rise due to economic recovery from Covid as consumption will normalize. Although the supply concerns of soybean oil are likely to persist until 2022, sunflower oil in India is expected to curb the demand for soybean oil in the same period as the price of this oil fell below soybean oil in July 2021.
Biodiesel mandates affecting supply
The supply tightness started from the beginning of 2021 with the election of Joe Biden as US President who promised “Clean Energy Revolution”. This initiative increased biofuel demand and the use of soybean oil as feedstock in biodiesel production. The increased demand further tightened the vegetable oil supply, especially soybean oil, which was already squeezed due to traders’ restocking activities after COVID-19 lockdowns.
The biofuel initiative wasn’t limited to the US. Brazil has historically been the second largest exporter of soybean oil after Argentina. However, Brazil’s soybean oil imports surged in 2021 to 86,000 tonnes until August from mere 21,000 tonnes in the same period in 2020 due to increasing biodiesel blending mandates with Brazil’s biofuel regulator ANP (National Agency of Petroleum, Natural Gas and Biofuels), permitting the use of imported feedstocks for biofuel production amid high domestic prices.
This supply tightness is likely to continue as Brazil’s soybean oil production is expected to be lower in 2021 than 2020. The country’s blending mandate will also increase from 10% to 13% in November 2021. Argentina, the biggest exporter of soybean oil, is also expected to lower its exports until 2022 on accounts of higher biodiesel use. The domestic consumption of soybean oil is expected to increase by 1.8 million tonnes in the crop year 2021-22 to 61.4 million tonnes compared to the previous year.
Global soybean oil prices started rising after Covid lockdowns as restocking happened in fear of second lockdown and quarantine measures. However, it kept rising in 2021 from US$1,099 per ton in January to US$1,569 per ton in May, before normalizing in June following the decline in biodiesel demand in the US. However, soybean oil prices in Brazil and Argentina are still up due to the higher domestic demand. Global buyers are looking for cheaper supplies from other South American countries and soybean oil alternatives.
Alternatives of soybean oil
High prices and supply tightness of the soybean oil market is forcing price-sensitive buyers like India and China to look for cheaper alternatives such as palm oil and sunflower oil.
Although palm oil appears the cheapest option, it is reserved only in the hospitality and catering sectors, while sunflower oil (like soybean oil) is a preferred home-cooking oil. Furthermore, global sunflower oil prices fell below soybean oil in May 2021, and Indian delivered sunflower oil prices became cheaper than soybean oil in July 2021. Sunflower oil production is also expected to increase by 2.8 million tonnes to 22.1 million tonnes in the crop year 2021-22 against the previous crop year. The global exports of sunflower oil are expected to be 5.1% higher than soybean oil in the crop year 2021-22.
Sunflower oil imports are also rebounding and are expected to increase in India and China to fill the vacuum created by soybean oil.
Argentinian soybean oil cargo to Asia is likely to remain stable in 2022, while additional vegetable oil demand countries like India and China are likely to be met with increased sunflower oil trade from Ukraine and Russia. This rise in trade on the Black Sea to India and the Black Sea to China route will support freight rates of chemical tankers on long-haul routes. However, the tonne-mile demand will face a minor setback due to reducing shipping distance.