For three seasons in a row, Ukraine demonstrated stable growth of rapeseed processing rates. However, in the current season the processing rates will start declining due to reduction of the oilseed harvest volumes and unfavorable pricing environment for the oilseed by-products. In the beginning of marketing year, oilseed crushers faced reduction of the bid prices for Ukrainian rapeseed oil. Also, large-scale carry-over stocks of rapeseed oil in China strengthened the reporting trend development, because China is the second largest consumer of the product from Ukraine. So, Ph.D. in Economics and Supervisory Board member at PJSC Nizhyn Fat Processing Plant, Oleg Voloshchuk told us about average difficulties faced by rapeseed processors.
About the company
Nizhyn Fat Processing Plant is a part of the Group of companies NZcC, founded in 1896. Multi-crop processing plant with the daily capacity of 500 tonnes crushes sunflower seed, rapeseed and flaxseed, and produced refined deodorized oil and other products under the brand name “Nizhynske”. Its structure includes two elevators, transport company, and the company selling chemical fertilizers.
- Oleg Georgievich, would You kindly tell us about business activities of Your company? What are the priorities of the company, and what the major trends for current development?
In 1896, two merchants of the Chernigov Governorate founded PJSC Nizhyn Fat Processing Plant. At that time, agrarians in the north of Ukraine mainly grew rapeseed and flaxseed, and nobody even planned to produce sunflower seed in the region.
So, the processing plant started working with the reporting oilseeds. In the 50ths, the plant began producing natural and oxidized drying oils based on rapeseed and flaxseed oils, oil paints and varnishes. In the 90ths, after cheap artificial Chinese paints came to our country the paint industry faced rather difficult times. Since 1998, we began reconstructing the capacities for production of edible oils (sunflower, rapeseed, flaxseed oils) and technical oils (rapeseed and flaxseed oils).
- Nizhyn Fat Processing Plant is a multi-crop processing facility. But what crop is a top-priority one for processing, and why?
During several recent years, in terms of climate warming, the region started mainly growing sunflower seed. Therefore, the percentage ratio demonstrates that sunflower seed forms 75% of our processing rates, rapeseed and flaxseed cover the remaining 25% in equal parts.
Previously, our company focused on the supply of rapeseed oil to biodiesel plants in Europe, but during several recent years due to falling petroleum prices, the prices for products of biodiesel plants become quite uncompetitive in relation to petroleum products, even in terms of various European subsidies and preferences. To date, the company sells more edible rapeseed oil to China and Israel than in Europe.
For over 10 years, we have cooperating with major Chinese pharmaceutical and chemical concerns. In 2013, we signed a long-term contract for the supply of flaxseed oil to China. And every year we regularly supply flexitanks with the reporting oil to our Chinese partners.
- In 2016/17 MY, Ukraine will decrease the production volumes of rapeseed due to reduction of the planted areas under the oilseed, as well as significant losses of winter rapeseed areas. How will the market develop in the reporting terms?
As it is known, adverse weather conditions during the autumn planting campaign, and in the winter, caused reduction of the planted areas under winter crops, including rapeseed. Ukraine planted winter rapeseed throughout 655.2 thsd ha, down 26% compared with 2015. Since Ukraine mainly produces winter rapeseed (its share totals nearly 95%), in the current year rapeseed harvest is expected to reach nearly 1.2 mln tonnes, down 30% compared with the index in 2015. Reduction of the harvest volumes, as well as VAT refund on rapeseed exports, form rather high prices on the domestic market, and in terms of the current lowering of prices on the global market of vegetable oils, such trend may decrease the volumes of domestic processing of rapeseed.
- According to some market participants, in the season-2016/17 rapeseed processing will be economically unsound due to high prices for oilseed raw materials and low bid prices for oilseed by-products. How would You comment such situation? Do You plan to realize any rapeseed processing at Your enterprise in the current season?
- To date, PJSC Nizhyn Fat Processing Plant continues storing oilseeds at its elevators, and plans to start processing new crop rapeseed and flaxseed in August. In September, we will move to sunflower seed processing. Depending on the accumulated stocks of raw materials at elevators of our company, situation on the global market and the economic efficiency rates, we will move to processing of rapeseed and flaxseed.
- PJSC Nizhyn Fat Processing Plant pursues the policy of financial and material support to farmers who sell us oilseeds for many years. We store oilseeds at our elevators, and if the agricultural company sells oilseeds to us, we do not take any payment for storing services. We can even provide partial advance payment at 50-70% on the stored oilseeds.
In the current year, PJSC Nizhyn Fat Processing Plant provides our partners with a new service: ability to give toll processing of rapeseed and flaxseed, and assistance in conclusion of the direct agreement with our Chinese and European partners to export own-produced veg oils and cakes to them. As a result, in such terms our clients will receive all additional financial and tax advantages for exports.
The policy of our company is to continue further development and expand the number of planted areas under the reporting crops, and increase the yield indices.
During several recent years, we received many requests for refined, deodorized bottled rapeseed and sunflower oil, under trademarks of the customer. For example, we supply rapeseed oil to Israel for the Jewish people, and bottled sunflower oil to Arab Christians. It is the national mentality of veg oils consumption.
We supply oils in the tank with a handle for the United Arab Emirates, because they do not use other containers for veg oils. And we supply virgin and cold pressed sunflower oil to the USA for stores of natural and healthy food.
- Would You tell about the features of 2015/16 MY for the export and domestic markets of rapeseed oil and cake (export geography, main buyers, logistics, demand, the ratio of sales on the domestic and export markets)? What major requirements do countries-importers have for the product quality?
Rapeseed is an export-oriented oilseed, and during 10 recent years the global demand for rapeseed significantly exceeds the offer. However, during several recent seasons there is observed increasing of both processing volumes of rapeseed on the domestic market, and the exports its by-products - rapeseed oil and rapeseed meal/cake. Thus, in 2015/16 MY the exports of rapeseed oil from Ukraine grew in almost 1.5 times compared with the previous season. The EU countries, as well as China and India, became the main countries interested in the imports of Ukrainian rapeseed oil. It should be noted that the qualitative parameters of Ukrainian rapeseed oil meet all requirements of the countries-importers, where it is used for technical (biofuels production) and food purposes.
But on the domestic market the demand for rapeseed oil, and meal/cake is almost absent, companies-producers sell small-scale volumes only.
To date, the Ukrainian export market of rapeseed oil demonstrates rather low demand. The situation developed due to large-scale carry-over stocks of rapeseed oil in China, which is the second largest importer of Ukrainian rapeseed oil.
Also, there is a demand for small shipments (5-10 containers) of bottled deodorized oil to Israel and Arab countries.
- How do You estimate the further development of the situation on the Ukrainian export market of rapeseed oil and cake in the short term (August-December)? How receptive is the market segment? What factors would contribute to the further development of the direction in Ukraine, and increase rapeseed processing rates?
In the short term, the market will face an increase of competition rates between grain traders and processors for economic benefits from rapeseed selling or processing. But in terms of rather low prices for rapeseed oil and cake, as well as changes in the conditions of rapeseed exports, to date traders have somewhat better positions.
Unfortunately, the previous Government and the Verkhovna Rada of Ukraine adopted the law on VAT refund for rapeseed exports, which makes more favorable conditions for traders for the oilseed exports from Ukraine. Such situation supports processing capacities of other countries, but Ukrainian plants will be idle, possible incomes will decline, and number of workplaces will reduce.
Any stimulation rapeseed and flaxseed exports will cause damages to the oilseed processing industry instead of its development, and our country will become a raw-material-producing appendage of the developed countries in future.
At the same time, oilseed processors still have many other difficulties to successfully compete on the global market:
- cost of credit resources in the national currency is more than 20%;
- non-payment of the export VAT for 6 months, which "outwashes" all working assets required for purchasing of oilseeds;
- national currency devaluation caused significant losses of plants due to exchange rates fluctuations between the value of foreign currency on the day of receiving of the loan and the value of foreign currency at the end of the year.
- PJSC Nizhyn Fat Processing Plant plans to launch two multi-crop oil extraction plants in 2016/17 MY for processing of sunflower seed and soybeans with the daily capacities of 1 thsd tonnes and 500 tonnes, respectively. Would You tell about the projects in more detail?
- In the current season, our company increased the capacities of sunflower seed processing to 500 tonnes/day. To date, we are constructing the first line of the oil extraction plant with the daily capacities of 1 thsd tonnes, which to be put into operation in the Ist quarter of 2017, and at the end of 2018 we will launch the second line for soybean processing with the daily capacities of 500 tonnes.
Construction of the oil extraction plant will allow increasing the profitability at the expense of doubling the volumes of oilseed processing and reduction of the fixed costs, increasing of oil production volumes, prices for oilseed meals and power energy savings.
We usually purchase technical equipment for the oil extraction plant from the Ukrainian company TAN, which successfully produces all required presses, heaters and other equipment for oil processing plants.
- In Your opinion, what should market participants expect in the rapeseed segment in 2016/17 MY?
As noted above, in 2016 the harvest of rapeseed in Ukraine will reach 1.2 mln tonnes, sunflower seed - nearly 12 mln tonnes. Also, the EU countries will produce good harvest of oilseeds. Since the reporting vegetable oils are interchangeable, I think there will be no high prices for rapeseed by-products. There is no any active demand from the companies producing biodiesel, and the food industry will replace refined deodorized rapeseed oil with sunflower oil, if the price is lower.
In late July, the prices for rapeseed in our region usually vary within the range of 10`400-10`600 UAH/t, and there is a slight tendency of further growing. To date, the bid prices for rapeseed oil on the Polish border reach the maximum level of 745 USD/t, and rapeseed cake - 190 USD/t. But the profitability is very low at such prices.
Most likely, in the beginning of the season the companies will process oilseeds as the moment arises due to the current market situation. Companies will try accumulating rapeseed reserves at the lowest possible prices, as well as contaminated or poor quality oilseeds, and expect for high oil prices to switch from sunflower processing to rapeseed processing. The trend will develop until beginning of the new year, and in the winter the prices for rapeseed oil will grow, and profitability of oilseed processing will also increase. Most rapeseed processors will start looking for the oilseed raw material on the market and increase their purchasing prices. But by that time, traders will already export most rapeseed volumes or concentrate them at the port elevators for further shipment. In the current year, oil processing enterprises will process nearly 200 thsd tonnes of rapeseed, and traders will export 1 mln tonnes of the oilseed.
Interviewed by Viktoria Zelenaya, APK-Inform Agency
