Palm oil prices have soared following Russia’s invasion of Ukraine as markets scramble for alternatives to sunflower oil shipments stuck at Black Sea ports.
Palm oil futures prices in Indonesia – the world’s largest exporter of the commodity – have soared more than 18% since last Wednesday, the day before Russia launched the attack, according to Refinitiv data. .
The war in Ukraine has increased uncertainty about whether port closures and shipping delays will limit sunflower oil deliveries. Ukrainian sunflower oil futures rose 32% in the early days of the invasion, according to data from S&P Global Platts.
Palm oil is a common ingredient found in many food and cosmetic products around the world. It is also used for cooking in India, the world’s largest importer.
James Fry, president of consultancy LMC International, told CNN Business that consumers in China, Pakistan, Bangladesh and countries in North Africa will also feel the pinch.
“All of these people – if they can get the oil – are going to have to pay a lot more for it,” he said.
“They will be forced to reduce their oil consumption. They will not be able to afford it. Especially if things like wheat are also much more expensive,” Fry added.
Russia’s attack on Ukraine “came at just the wrong time” for an extremely tight vegetable oil market, Fry added. Indonesia’s commerce ministry said in January it would cap shipments – which account for around 55% of global exports – to try to contain rising domestic prices.
Malaysia is the second largest exporter, but a labor shortage during the pandemic has limited production. Malaysian palm oil futures are up 76% since the start of this year, according to data from S&P Global.
Palm oil buyers can no longer rely on Ukrainian sunflower oil, which typically accounts for a third of global production and half of all exports, to fill the gap as long as trade is disrupted by war .
Buyers could turn to soybean oil, Fry said, but production is unlikely to increase enough to meet near-term demand.
“The global vegetable oil market was in a very tight and precarious situation prior to anything happening in the Black Sea,” Paul Hughes, chief agricultural economist at S&P Global, told CNN Business.
Hughes said the combined effect of the war in Ukraine and economic sanctions against Russia meant that “the market assumes the loss of this supply for an extended period.”
Even if the dispute subsides, sunflower oil buyers can expect to pay significant risk premiums for shipping to the region, Fry said.
“[The Russians have] facilities destroyed…buyers can be very reluctant to commit to major purchases if they don’t know they will be delivered,” he said.
According to the Food and Agriculture Organization of the United Nations, global food prices jumped 28% last year, in part due to supply chain disruptions. Russia’s assault on Ukraine and its impact on the supply of raw materials such as wheat and oil could drive prices up even further and exacerbate food insecurity.
Wheat futures rose more than 4% on Wednesday to a 14-year high.
— Julia Horowitz contributed to this report.
™ & © 2022 Cable News Network, Inc., a WarnerMedia company. All rights reserved.