Viewpoint: Short supply to drive EU RSO price

: Biofuels
19/12/19

A weak European rapeseed harvest and firm palm oil prices will keep fob Dutch mill crude rapeseed oil (RSO) prices elevated in the first half of 2020.

The European Commission forecasts the EU's rapeseed harvest for the July 2019-June 2020 season at 16.65mn t, a 13-year low and 17pc down on the year. European crushers will have to search for imports of rapeseed and alternative feedstocks to fill the gap.

But prices are also high for Malaysian palm oil, a rival feedstock. Front-month palm futures prices on the Bursa Malaysia have increased significantly in the past two months because of higher demand in Indonesia and Malaysia. The front-month price of $663/t on 9 December was way above the $495/t on 14 October. Palm oil prices will remain firm as a result of rising mandates in Indonesia and Malaysia, and will be supported by a potential delay to palm oil's removal from EU biofuels feedstock, to 2030.

This in turn should provide support for European prices. Argus assessed the fob Dutch mill RSO front three-month contract at €810/t on 13 December, higher than the €796/t average for September-to-November, itself a five-year high for the period.

The commission forecasts combined RSO stocks, production and imports in the EU at 9.9mn t in 2019-20, down from 10.7mn t a year earlier. This would suggest a demand deficit and, so far in the 2019-20 season this has encouraged higher imports of soybean oil (SBO) and sunflower seed oil. The commission's forecast for the 2020-21 rapeseed crop is not optimal either. Although sowing conditions improved in the autumn, EU planted area will fall by 1.3mn ha, equivalent to 19pc less rapeseed planted, and this will result in further RSO supply tightness in the medium term.

EU rapeseed imports have risen sharply to fill the gap, to 3.2mn t for the 1 July-2 December 2019 period, a 65pc rise from the 1.95mn t imported between those dates a year earlier. Almost 80pc of this has come from Ukraine — the EU's largest supplier for the past three years — so far in the 2019-20 season. Ukraine has now shipped most of its available seed. Member states should not expect to close the remaining shortfall through imports from Australia, the country that is historically the EU's largest supplier. It faces a 10-year low harvest, which will limit its export capability to the EU to below 800,000t for the season, compared with 1.35mn t in 2018-19 and 1.63mn t the year before.

RSO has a historical link to the US SBO futures prices. When the RSO/SBO premium increases significantly, European blenders will import soybean or SBO for biodiesel production. The ongoing trade conflict between the US and China has pressured SBO prices as Chinese demand has been limited, which has encouraged European import levels; any deal to end the dispute could support SBO prices.

More soybean and canola is coming to the EU from the US and Canada, also thanks to trade disputes that are limiting purchasing by China. Canada shipped 553,000t of canola to the EU in the first five months of the crop season, already higher than the average of 332,000 t/yr of the past five crop years. The Canola Council of Canada estimates between 1.2mn t and 2mn t could be exported to the EU this year; EU participants expect around 1.5mn-1.6mn t based on current flows.

By Leonidas Kanonis

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