Paraffin Tightness Firms LAB Prices

31 August 1998 00:00  [Source: ICB Americas]

By Helena HarviliczMajor producers of linear alkylbenzene (LAB) report a tightness in normal paraffins feedstocks, which has resulted in modest price increases in LAB during the past year. Global demand for the precursor to linear alkylbenzene sulfonate (LAS)--the detergent industry's workhorse surfactant--continues to grow at a 2 to 4 percent annual rate, led by Latin America, Eastern Europe and Asia.

Although some LAB producers manufacture their own n-paraffins feedstocks, most do not, and increased LAB production over the last few years has outpaced paraffins. "I would describe it as a tight situation," says Janice Mabe, business manager of alkylides at Huntsman Corporation. "Not enough new paraffin capacity has come on line as LAB capacity and production has grown."

Ms. Mabe says that producers probably have not considered backward integration into paraffins a good investment, given that profit margins on LAB have been slim.

New Asian LAB producers in particular have put pressure on the n-paraffins market, she says. "If Asian producers have been able to buy paraffins less expensively than they can generate them from a plant that they built of their own, allowing for a reasonable rate of return, then buy vs. build has been a pretty easy decision for them to make." She adds, however, that LAB is a global market, and the tightness in n-paraffins is not restricted to one geographic area.

Mark Quintyn, general manager and commercial director at Petresa, also points to the quality of the kerosenes available. "The limited availability of rich paraffinic kerosenes is also a reason for the lower production of normal paraffins," he says. This lower production, coupled with the new LAB capacity, is pressuring the merchant market.

Mr. Quintyn adds that 100,000 tons of n-paraffins were knocked out when Shell's plant in Malaysia exploded last December, about 50,000 tons of which were in the detergent range.

Condea, an LAB producer that is back-integrated into n-paraffins, also recognizes a tightness. "Supplies of normal paraffins are tight and producers are struggling to keep up with the strong demand, particularly from linear alkylbenzene producers in Europe, the Americas and around the world," says a Condea spokesperson.

"The tightness in the supply is partially due to long-term production disruption in Asia as well as the changing availability of crude oil slates."

The n-paraffins tightness has caused an increase in price from about $400 per metric ton to nearly $550 per metric ton on a cost and freight basis, according to an industry source.

This has pushed up the price of LAB, which sells in a range of 45 to 52 cents per pound, with larger soapers paying lower prices and independent sulfonators and smaller soapers buying in the higher range. Prices for LAB have risen nearly $100 per metric ton during the past year.

"Pricing is pretty level, but it's at a high point. It's at a ceiling," says Joel Houston of consultancy Colin A. Houston & Associates. Mr. Houston says the pricing dynamic of LAB is like that of a commodity chemical, with pricing moving up or down depending on the availability of feedstocks. The current tightness is for two reasons, he explains, the Shell explosion and Nirma's new plant in India.

"The Shell explosion accounted for less than 3 percent of paraffins feedstocks for LAB," he estimates.

"Nirma's new LAB plant in India, however, acted as the final staw and swallowed the remaining n-paraffins capacity available. Although there have been constrictions in the past, this one is affecting operations and pricing globally."

From a new capacity standpoint, there is little relief in sight, Mr. Houston says. He adds, though, that the situation should see some correction as the expected downturn in Asian demand, because of the economic slowdown in that region, works through the system.

Petresa's Mr. Quintyn expects additional capacity to come on in the near future. He says Shell will rebuild its paraffins facility in Malaysia by 2000, Exxon Chemical Company will expand a normal paraffins plant in the US within a few years and Petresa, which is back-integrated, will debottleneck its 200,000-metric-ton n-paraffins capacity.

"Additional n-paraffins capacity is important to allow the LAB trend to follow its natural annual growth pattern of 2 to 3 percent worldwide," he adds.

Steady worldwide growth in LAB has been driving the tightness. Huntsman's Ms. Mabe characterizes the market as a situation in which LAB production has "finally caught up" with n-paraffins capacity.

Western Europe and the US are mature markets, but Latin America, Asia and Eastern Europe are growing. Part of that growth has been fueled by the switch from branched alkylbenzene to linear alkylbenzene, which biodegrades faster. The US made the change more than 30 years ago, but it has happened more recently in developing countries. Some producers in Colombia are just now making the change in response to anticipated government regulations.

"We expect LAB demand to grow anywhere between 2 to 4 percent per annum in the coming five years," notes a Condea spokesperson. "Obviously this is an average for potential growth. We will experience lower-than-average growth in Europe and North America, and higher-than-average in Asia and Latin America."

In reference to the economic troubles in Asia, the spokesperson says that they expect the decline in demand for consumer goods to eventually affect raw materials, but that right now demand is stable. (See related Chemical Profile on page 37).

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