India is expected to see its highest monthly imports of soybean oil in August as the disruptions to shipments of sunflower oil from the Black Sea region are forcing domestic refiners to look elsewhere for alternative sources of supply.
Soyoil imports are expected to reach around 620,000 metric tonnes in August, according to people familiar with the market. The volume is almost 46% higher than the average monthly volume of 424,549 tonnes in the current marketing year, which started in November.
The sharp rise is a marked change in India’s edible oil buying pattern as geopolitical tensions between Russia and Ukraine continue to disrupt shipments from the Black Sea.
Sunflower oil shipments are delayed
Russia and Ukraine are among the most important suppliers of sunflower oil to India. But continued hostilities have affected shipments and created uncertainty for Indian buyers.
Based on market participants, about 150,000 tons of sunflower oil cargoes scheduled for August and September have been delayed because of the conflict.
As a result, India's sunflower oil imports could fall to about 180,000 tonnes in August, down about 28% from July and maybe the lowest monthly level since February.
In addition, the disruption is leading refiners that traditionally depend on sunflower oil to add soybean oil to their purchases, particularly those that depend on sunflower oil.
Soyoil is an alternative
Consequently, vegetable oil shipments have become more difficult to reach the Black Sea since military activity continues to affect ports and maritime infrastructure in the region.
For Indian refiners, the disruption is particularly painful for southeastern markets where sunflower oil is very popular and has long been popular.
With sunflower oil cargoes facing delays, buyers are turning to soybean oil more and more.
Soyoil shipments are now reaching southern Indian ports like Krishnapatnam and Kakinada, along with established western gateways such as Kandla and JNPT.
With more soyoil at different ports, refiners are able to adjust their sourcing options as they’re uncertain of the availability of sunflower oil.
Soyoil prices are lower in the short term and more competitive.
Price is also a big part of that
The premium for soybean oil over palm oil has significantly fallen. Currently, it is closer to $50/tonne as opposed to more than $100/tonne in April.
Thus, Indian refiners and consumers have made soyoil more competitive.
At the same time, palm oil prices have been supported by unfavourable weather conditions and Indonesia’s decision to increase the use of palm oil for biofuel production.
As a consequence, the price advantage of palm oil over soyoil has been diminished, and refiners receive an additional reason to purchase soybean oil.
Thanks to the festive demand for edible oil imports and food production, an increase in consumption is boosting edible oil imports.
Seasonal demand is also playing a role in the increase
India's edible oil purchases typically rise ahead of the major festive season as household consumption and food processing activity increase.
The total edible oil imports reached a 10-month high of 1.48 million tonnes in July.
In the same month, India's soyoil imports jumped 31% to 498,881 tonnes, indicating that the demand for soybean oil had been rising before the recent hit to sunflower oil supply.
Seasonal demand and supply uncertainty could keep India's edible oil imports elevated in the next few months.
Soyoil imports may be above 600,000 tonnes.
The increase in buying may not be limited to August
Market participants said that India has already booked nearly 1.4 million tonnes of soyoil for delivery between September and December.
That means monthly imports are expected to remain above 600,000 tonnes in September and that the shift to soybean oil could continue even after some of the immediate supply disruptions ease.
Argentina and Brazil remain India's soybean oil suppliers.
That said, Indian refiners are also sourcing prompt cargoes from countries such as China, Egypt, Thailand and Turkey to meet immediate needs.
In addition, domestic oilseed production is a concern
Another factor affecting buying decisions is India’s domestic oilseed production.
The outcome of El Niño weather conditions may influence domestic oilseed production. The negative impact on soybean and other oilseed production in India could increase India’s dependence on imported edible oil.
India is already one of the major edible oil importers in the world, and international price levels, weather conditions, and geopolitical developments determine domestic food inflation.
What will be the effect of this change on India’s edible oil market?
The recent developments are changing India’s edible oil procurement strategy.
Sunflower oil is still an important part of the Indian market; however, the recent Black Sea disruptions have led refiners to diversify their purchases.
Hence, soyoil is now benefiting from three factors at the same time: delayed sunflower oil shipments, seasonal demand, and a narrower price premium over palm oil.
If the Black Sea disruptions continue and soyoil remains competitively priced, Indian imports could remain high for some time to come.
And for consumers, higher dependence on imported edible oils means domestic prices could remain sensitive to international commodity prices, freight costs, currency movements, and geopolitical developments.
Soybean oil is now the preferred substitute for delayed sunflower oil cargoes, driving India’s August imports to a record level of 620,000 tonnes.
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