Crude Tall Oil Stabilizes and Begins to Recover From 1998

23 August 1999 00:00  [Source: ICB Americas]

By Jim Papanikolaw

The crude tall oil market remains soft, mainly because of depressed Asian demand for products that contain CTO derivatives such as tall oil rosins and tall oil fatty acids.

In general, the market has stabilized from its free-fall in 1998. The supply of black liquor soap, a pulping byproduct that is CTO's precursor, has been reduced by slowdowns in the paper industry, which has been hampered by overcapacity and the ongoing economic troubles in Asia.

Thus far in 1999, average monthly CTO production in the Southeastern US has been 66,000 short tons, compared to 73,000 short tons throughout all of 1998, according to industry estimates.

Tall oil rosin production has followed a similar trend. Roughly 39 million pounds per month have been made this year, nearly identical to last year's monthly pace of 45 million pounds.

The industry is seeing signals of a recovery in Asia, but its optimism is being tempered by caution. "We're beginning to see some signs of a recovery in the Far East, although things are improving slowly," a producer says. "There has been a steady improvement during the past month and a half. Hopefully, things will accelerate during the second half."

"Although the market appears to have hit the bottom, things are on the upswing," another producer adds.

The curtailed paper production, solid North American demand, and hints of a turnaround in Asia have stabilized the market.

Last year, CTO stock levels were 1.1 months of inventory (inventory amount divided by average production). Although the index is up to 1.4 months this year, it has stayed at that level for several months, and analysts say the index may come down a bit.

A substantial decrease in gum rosin supply relative to last year's large crop---caused by flooding in China and decreased acreage in reaction to low gum rosin prices--should also help the CTO chain.

Despite the global market conditions, US demand has remained fairly steady. US CTO consumption is forecasted to grow at an average annual rate of 2 percent, from 878,000 metric tons in 1996 to 969,000 metric tons in 2001, according to SRI International, a consultancy based in Menlo Park, Calif.

Hercules Inc.'s resins division recently announced it will close a small, crude tall oil fractionating column in Portland, Ore., at the end of the year.

Lower demand for the rosin resin and the column's small-scale economics led to the shutdown.

The company's pulp and paper operations use the column's tall oil rosin for paper sizing. An industry-wide shift to cheaper, non-rosin alternatives, mainly alkalines, has reduced the demand for tall oil rosin in paper sizing.

Customers served by the Portland unit will be supplied with material from the company's fractionation facilities in Savannah, Ga., and Franklin, Va. Both of those units have annual capacities of 70,000 short tons.

Paper operations at the Portland plant will not change. Neither will the company's focus on the rosins business, according to Juan Magrans, Hercules' global business manager for rosins and co-products.

"The column shutdown will not significantly impact the market because all of the tall oil rosin coming out of Portland was used internally," Mr. Magrans says. "We are committed to strengthening our operations as we look for selective growth in the rosins business."

The company will present a paper at the Pine Chemicals Association's international conference in New Orleans, La., on September 14. The presentation is titled "Hercules is Bullish on Rosin." It will outline the rosin molecule's unique performance characteristics.

CASCHEM Inc., a subsidiary of Cambrex Corporation, has begun manufacturing and producing sebacic acid at a new automated plant. The facility will also produce 2-octanone and 2-octanol at higher purities than products currently on the market, according to the company.

"Sebacic acid is a natural extension of our castor oil-based product lines," says James A. Mack, Cambrex's president and CEO.

"Large users have approached us over the years to supply them with sebacic acid. We decided to enter the market after designing a proprietary low-cost process and securing a base of business through a long-term contract with a major customer. With the strength of the several end-use markets, we expect continued growth in this business."

Sebacic acid is used in the personal care and synthetic lubricant market, as well as for producing hot melt adhesives and specialty nylon copolymers and teropolymers.

USDA signed an agreement with Guyana earlier this month, under Public Law 480, Title I, for the purchase of $3 million of US soybean meal, corn and vegetable oil. The move will finance the purchase of about 10,500 metric tons of US soybean meal, 7,500 metric tons of corn and 600 metric tons of vegetable oil, according to USDA

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