LECITHIN NEWS Q1-2023
The Non-GMO lecithin market is currently facing significant challenges in 2022. Limited availability and high prices caused by the conflict in Ukraine and peanut cross-contamination in India have contributed to an uncertain market. Despite Lasenor Group’s efforts to keep prices fair, the situation remains challenging. However, we anticipate positive developments in Q2 2023, including government support for the local vegetable oil industry in India and the impact of the drought in Argentina on soya meal production. It’s worth noting that the sunflower lecithin market remains small due to strict EU sanctions on Russian lecithin.
MARKET OVERVIEW
The Non-GMO lecithin market experienced an unprecedented challenge in 2022. Two unexpected factors hit our relatively small market of approximately 100 000 t/annum:
- The conflict in Ukraine, which started in February
- Peanut cross-contamination in India.
Consequently, the market has been under extreme pressure from both the availability and price standpoint.
It is worth highlighting that Lasenor has adopted a fair position in such market conditions, doing our best to minimize the price hike as much as possible, considering that these price levels are not long-term sustainable for the industry.
Since Autumn 2022, the new Indian crop has been carefully monitored with the hope that it will have a positive impact on the market and bring ease to prices. Even if the Soy harvest was as good as expected (11.3 million t in 2022 v/s 10.5 million t in 2021) and despite a slight price decrease end September-beginning October, lecithin prices remained at a high level as a result of tight availability in India.
With Inflation becoming a real drawback to the agribusiness sector, the Indian government was forced to remove import duties on soya meal and soya oil to support the domestic market. These measures discouraged the crushing activity and thus did not result in a price downtrend for soy-derived commodities that the market had been expecting. Instead, due to low lecithin availability, the prices went up again in India, thus reaching almost spring-summer levels in December 2022. This was also driven by a bullish soya complex oriented by solid demand in the USA, a severe drought in Argentina, and an expected increase in Brazil´s biodiesel output starting from February 2023.
Non-GMO Soya lecithin – Identity Preserved
Global and internal market conditions have recently improved, which signals positive developments in the market by Q2 2023:
- To support the local vegetable oil industry, the Indian government announced on January 11th, 2023, the removal of the tariff rate quota for imports of soya oil with effect on 01.04.203. Material purchased until this date will be allowed to be imported until 30.06.2023. Import duty would come back to 5.5% on purchases done starting 01.04.2023. This may allow local production of soyabean oil to be competitive on the domestic market with the condition that imported soyabean oil would remain at current levels or higher.
- The severe drought in Argentina has solidly impacted Argentinian soya meal production. Soya meal being scarce in this country, it also has become expensive. Therefore, Indian soya meal is now finding its way to be sold in AMEA at a competitive price v/s Argentinian material, which has a positive impact on Indian crushing and, consequently, on lecithin production.
- The price gap between soya oil and palm oil has yet to be sustainable. Price ease on palm oil started this summer, and India has been importing large amounts from Indonesia. This had an accentuated effect pushing prices of local oilseeds and vegetable oils down.
- The carry-over of the Soy harvest 2021 is quite substantial (1,45 million t), with 2022 better than average. This means that the total amount of beans to be crushed is ample.
In such a condition, better availability could be expected in Q2 2023, leading to price ease. However, it remains to be seen which is the quality of the 2021 crop beans stored until now. Quality issues will then be a key factor to be monitored. This will play a major role in the lecithin market orientation in India.
Sunflower Lecithin
The conflict in Ukraine is still ongoing, with no positive end expected in the short term.
The power outage in the Ukrainian electricity system raises the risk of low sunflower seeds crushing this year. Thus, lecithin production will remain limited and concentrated in the Western part of the country.
Moreover, the threat we mentioned in our last issue has happened: the 8th package of sanctions from the EU against Russia was published in October 2022 and includes all lecithin varieties. This means that importing lecithin from Russia into the EU has been strictly prohibited since 6th January 2023, while Russian material was the most robust alternative in volume to Ukrainian sunflower lecithin.
Additionally, the EU has set up a Directive proposal to harmonize criminalization of the violation of the EU sanctions among Member States. The proposed Directive will establish the same level of penalties in all Member States. Thereby it will close existing legal loopholes and increase the deterrent effect of violating EU sanctions in the first place.
The main elements of the proposal include a list of criminal offenses that violate EU sanctions, such as circumventing an EU restrictive measure: this means bypassing or attempting to bypass restrictive measures. This measure now strongly affects the European market, making lecithin produced by the EU and Argentinian the only sources of sunflower lecithin.
Thanks to Lasenor network in these two areas and the strict volume allocation plan set up at the end of 2022, we expect to supply regular customers with the necessary quantities usually purchased to Lasenor.
Conclusion
Our market will still face some uncertainty in the coming months.
Even if, from the availability point of view, the picture seems to look good in India by Q2 2023, it remains to be seen if the soya meal prices will stay at high levels and thus continue positively impacting Indian crushing.
It is worth underlining that recent bearishness in vegetable oil prices has boosted Indian imports, leading to record stocks of oils and fats: 3.9 million t end of December v/s 1.3 million t a year ago. This may limit crushing activity during Q1 2023 until stocks are absorbed.
Potential crushing increase in India is related to the production of soya meal, thus to the feed industry where peanuts contamination is not an issue. Then, the material available for food application will be less abundant, and lecithin processors will still have to monitor this parameter closely.
As sunflower and IP soybean lecithin markets are communicating vessels, the tightness of non-Russian sunflower lecithin will also impact the global Non-GMO lecithin market. Therefore, we do not expect a sharp price decrease by Q2 2023 and would rather speak about a price correction if the conditions described in this edition materialize.
