Surging freight rates stifle sunflower oil exports from Ukraine, Russia

The cost of freight for sunflower oil shipments has soared to record highs, market sources said May 27, as Russia's prolonged blockage of Ukraine's Black Sea ports continues to stifle the export market.

Since Russia's invasion of Ukraine on Feb. 24, external supply chains from the world's largest sunflower oil producer and exporter have been fractured, as ports along the Black Sea ceased operations shortly after the conflict began due to the blockage of shipping routes.

Reni and Izmail ports, which sit on the Danube River to the southwest of Ukraine, have remained operational, though do not offer the same capacity as larger ports such as Chornomorsk and Odessa.

Despite some recovery in Ukraine's sunflower oil shipments since the beginning of the conflict, market sources told S&P Global Commodity Insights that rising freight costs are stagnating the export market, with buyers reluctant to pay such high charges.

One trader reported being quoted a freight rate of $283/mt for a 6,000 mt cargo of crude sunflower oil from Reni to another European port, bringing the total cost of freight for the shipment to almost $1.7 million.

The freight rates were in the $30-$50/mt range before the Russian invasion and have been gradually rising ever since.

"Do you think it's possible to offer to the market with such freight," the trader said. "Moreover, there is only one owner who offers a vessel for route from Ukraine."

Challenges with rallying shipping prices are compounded by dwindling storage for sunflower produce, forcing crushers to be careful to avoid overproduction.

"One problem is the storage tank situation, you can't produce more oil than you can keep," a second source said. "Another problem is sunflower meal – if you can't ship sunflower oil, you can't ship meal. There are still huge problems for storing meal and because of this, people keep stopping and starting production."

A third market participant said that Russian sellers are facing the same problem with freight costs, with the added issue of rising export taxes.

"In Russia, the situation is the same – the freight kills the business. I've heard about 3 crushing facilities which are going to stop operations next week. Keeping in mind export tax in June is set at $525/mt, I doubt that exports will increase," the source said.

Russian export taxes on sunflower oil for June are set to rise 41.1% from the May level of $372/mt.

Russian sunflower oil shipments have been limited by export quotas introduced by the agriculture ministry since April 15. The quota restricts total exports to 1.5 million mt between April and September, with any volumes in excess to be subject to heavy taxes.

Recent indications that Russia would be willing to allow a humanitarian corridor from Ukraine for food shipments in return for the lifting of sanctions on its financial sector and fertilizer exports have done little to support sunflower oil markets.

The FOB Black Sea assessment settled at $1,779.50/mt May 26, down 9.7% on the week.

However, optimism that an agreement could be reached may have disappeared, as the US "certainly won't lift our sanctions in response to empty promises," a spokesperson for the US Department of State said May 25.