Refined sunflower oil volumes to drop by 8-10% in 2025, said CRISIL
CRISIL Ratings predicts an 8-10% decline in Indian refined sunflower oil volumes in fiscal 2025. Sunflower oil refiners’ profitability to increase by 50-60 bps due to stable prices and hedging policies. India’s edible oil industry dominated by palm oil with 40% share. Despite declining volume, sunflower oil prices expected to remain firm. Refiners unlikely to expand capacity in fiscal 2025, maintaining robust financial profile amidst geopolitical challenges.
Indian refined sunflower oil volumes are estimated to decline by 8-10 per cent in fiscal 2025, said a report by CRISIL Ratings. This, it added, is due to domestic consumers shifting back to soybean oil amid a price correction on the back of a healthy soy harvest. Profitability of sunflower oil refiners, however, will expand 50-60 basis points (bps) on stable prices, hedging policies and the government’s announcement of continuing duty-free imports, the report stated.
The credit risk profile of refiners will remain stable on strengthened balance sheets with strong accretions in fiscal 2021 and 2022 and the absence of major debt-funded capital expenditure over the medium term.
A CRISIL Ratings study of 10 companies that account for more than 70 per cent of the approximately Rs 31,000 crore domestic sunflower oil industry indicates as much.
The Indian edible oil industry is dominated by palm oil with a share of around 40 per cent in volumes followed by soybean oil and sunflower oil with a 20 per cent and 15 per cent share respectively. Demand for sunflower oil depends partly on the price movement of its substitutes such as palm oil and soybean oil.
“With a bumper crop, the price of soybean oil is likely to correct by $100 per tonne on-year and be on a par with sunflower oil in fiscal 2025. The resultant shift in consumption towards soybean oil will lower sunflower oil volume to 28-29 lakh tonne in fiscal 2025 from 32 lakh tonne in fiscal 2024, although volume would remain higher than the historical average of five years through fiscal 2024,” said Jayashree Nandakumar, Director, CRISIL Ratings.
India has a significant sunflower oil refining capacity and the country imports over 95 per cent of its sunflower crude requirement. While the refined sunflower oil is predominantly consumed within the country, the movement in its prices largely depends on that of the imported crude.
Per CRISIL, despite declining volume, crude prices are expected to remain firm this fiscal as shipping and freight costs continue to be high amid the Red Sea crisis resulting in geopolitical uncertainties in the Middle East. This, coupled with domestic demand, will result in sustenance of refined sunflower oil prices at current levels. Given lower volume and firm prices, the industry is expected to degrow 6-8 per cent in fiscal 2025.
“Despite the degrowth, profitability of refiners would improve 50-60 bps supported by favourable spreads on robust demand and no anticipated sharp fluctuations in prices. Also, refiners have firm hedging policies in place to avoid downside price risks. This, coupled with the government announcement on continuation of duty-free imports of crude sunflower oil will support the margins of refiners,” said Rishi Hari, Associate Director, CRISIL Ratings.
Furthermore, CRISIL said that refines are unlikely to embark on large capacity addition in fiscal 2025, with ample refining capacities already added during the Covid-19 pandemic. “With major addition to debt unlikely and healthy accrual, sunflower oil refiners should be able to maintain a robust financial risk profile,” it added. On the road ahead, the impact of ongoing geopolitical challenges and international edible oil trade dynamics will be monitorable.
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