July 19, 2011

 

Low EU rapeseed crop to create import surge

 

 

A poor EU rapeseed crop is likely to blast a large gap in Europe's oilseeds supplies which could spell a business boost to other producers, especially Asian palm oil.

 

Poor rapeseed crops around the world mean EU producers will probably not simply be able to import alternative rapeseed supplies from other countries to completely compensate for what is expected to be a small harvest, analysts said.

 

This may compel EU food and biofuel producers to make unusually large purchases of palm oil from Malaysia and Indonesia, sunflower oil from Ukraine, and soyoil from Argentina and Brazil in the coming months, traders and analysts said.

 

"There will be no simple answer to EU supply needs," said Siegfried Falk of German oilseeds analysts Oil World.

 

Spring drought damage to the EU rapeseed crop is more serious than what was originally forecasted, and Oil World estimates the crop will be 20% or five million tonnes below the bloc's requirements. Rain came too late for EU rapeseed to recover from drought and the 2011 harvest is expected to slump 8.2% on the year to 18.8 million tonnes.

 

Falk said the low EU rapeseed crop is likely to generate higher than foreseen imports of both rapeseed, edible oils, and biodiesel in coming months.

 

The EU is likely to become the world's largest rapeseed importer in the new 2011-12 season, buying 3.1 million tonnes.

 

"About half of this is likely to come from Ukraine and the rest from Australia, Canada and other sources," he said.

 

This would still leave a two million tonne supply gap. "It will not be possible to replace the fall in the rapeseed crop of such a scale simply with rapeseed imports," Falk said.

 

"Europe is likely to need a range of other edible oil imports. There are likely to be large imports of palm oil and sunflower oil, which both have better supply outlooks."

 

Some industrial buyers have often not realised the size of the approaching problem, one vegetable oil trader said. "I find industry is waiting to see the final harvest picture before deciding on new imports, but it must be remembered that it is now too late for rapeseed to recover in the EU."

 

Food processors also expect more palm oil purchasing. Reinier Kelder, Vice President Procurement of Dutch group CSM , the world's largest bakery products supplier, said palm oil was likely to be in the sights of some industrial consumers.

 

"In many applications palm oil is an alternative."

 

Soyoil is generally not an easy solution as it often contains genetically-modified organisms (GMOs) which many European food processors wish to avoid, he said.

 

Price differentials between rapeseed oil and palm oil in Europe nearly doubled in July compared to previous month making palm oil more attractive.

 

Malaysia front-month crude palm oil contracts were offered at EUR752 (US$1,062) a tonne in Rotterdam, compared to EUR980 (US$1,042) a tonne for rapeseed oil in July.

 

In June, the same crude palm oil contracts were offered at EUR814 (US$1,149) a tonne while rape seed oil was offered at EUR985 (US$1,340) a tonne.

 

Kona Haque of the Macquarie research said that ample supplies and favourable price of palm oil will put a lid on big rapeseed oil price hikes in Europe which could hamper the demand.

 

"If the rape oil price is too high the market can easily switch to palm oil," she said.

 

Europe's large biodiesel industry will also be compelled to seek alternative supplies. Increasing domestic biodiesel consumption in Argentina and Brazil could limit their export supplies, also creating more demand for palm-oil based biodiesel from Indonesia.

 

"Large biodiesel imports are also likely from origins including Argentina and Indonesia," Falk said. "Indonesia has sharply increased its biodiesel sales to Europe in recent months."