Sun Oil Special: Prices to Head Southward in Next Quarter, Higher Premium Pales Market Share

Mumbai (Commodities Control) - Sunflower oil prices are topping the edible oil complex by touching multi-year highs. This has pushed buyers demand for cheaper options such as soy oil and palm. This weakness in demand instantly reflected on sunoil rates which have started to ease recently.

Technical charts reveal that Sunoil faces stiff resistance at Rs 1850 per 10Kgs, while prices have slipped to Rs 1,700 levels and it is expected to drop to Rs 1,400 a swell. Having said so, any demand from South Indian markets can provide a floor to the declining soft oil prices.

It is to be noted that sunoil prices have been consistently higher as compared with other soft oils in the complex. The reason behind firm domestic sunflower oil prices lies in higher global market rates.

Ukraine and Russia are the World’s largest sunflower oil producer and exporters. Drop in output at these nations initiated a sharp northward price rally in seed and oil. Sunflower oil Black Sea FOB shot up 31% or $400/tonne to $1,710 per Tonne, the highest in the last 13 years. This price move in sunoil pushed soyoil prices to 8-year and CPO prices to 13-year highs, as well.

Soybean crushing season in South America will commence this month, while palm crushing is underway since March 2021. The respective edible oils are witnessing suppressed prices due to increased supplies. The premium has widened also due to elevated sunoil prices. Although, subdued bean and palm oil prices will weigh on sun oil prices eventually, cooling off the prices. It is because, the consumption has already shifted into cheaper bean and palm oils.

It is to be noted that South India is the biggest consumer of sunflower oil in India.

In international markets, sunflower oil prices have shot up $400/Tonne in a period of just 5 weeks to 13-year highs of $1,700/Tonne (Black Sea FOB). Due to the rapid price rise, the premium to soyoil has widened by $350 and by $500/Tonne as compared with CPO.

Last week it was reported that Russia plans to impose an export tax on sunflower oil from April. 1 to keep a check of price rise. This is unlikely to have an impact of Indian markets at the moment, as there’s limited demand for sunflower oil due to exorbitantly high prices.

It is to be noted that India is dependant on imports for its requirement of sunflower oil, while the domestic production is barely 10-15% of its consumption requirement. According to the Agricultural Ministry, sunflower acreage during the rabi season has been registered at 1.04 lakh hectares, similar to last year’s sowing data. Last five year’s average acreage stands out at 2.41 Lakh hectares.

It is to be noted that during the crop year 2020-21, sunflower output is seen at 2.24 Lakh tonnes against the target of 3.08 lakh tonnes. Last year, during both the seasons, the output was registered at 2.13 lakh tonnes.

Having said so, sunoil imports for the marketing year 2020-21 has dropped by 22% to 7.7 Lakh tonnes so far. Meanwhile over 25 lakh tonnes were imported in the last marketing year, up 8.6% from prior year. On the other hand, soyoil imports have risen by 3.6% between November 2020- February 2021.

Technical charts indicate decline in sunoil rates. Sunflower oil (Kakinada) has a strong resistance at Rs 1,850, while prices have declined to Rs 1,700. According to the charts, rates will drop further to Rs 1,600 and may even fall lower to Rs 1,400. Experts see softer prices in the oil over the next quarter.

Spread chart of Sunflower (Kakinada) and Refined Soy Oil (Indore) indicates that sunoil prices are most likely to head southward as compared with soy oil, due to which we advise to sell sunoil and buy soy refined oil.