Tall Oil Rosin Market Hit By Upward Pricing Pressure

30 October 2000 00:00  [Source: ICB Americas]

By Doris de Guzman

A spike in demand for tall oil rosin (TOR), due to moderate growth for tackifier resins, is the only bright spot in an otherwise flat rosin market. Domestic consumption of TOR is up this year as inventories built up from a depressed rosin market since 1998 are decreasing.

"Indications are all in place that the price [of TOR] is going to escalate because demand is strong and supply cannot increase," says D.F. Stauffer, president of International Development Associates, Inc. (IDA), a Mendenhall, Pa.-based consulting firm. Domestic consumption of TOR increased 9 percent from 192.6 thousand metric tons in 1999 to 209.9 thousand metric tons as of July this year, according to IDA's recent study of the international rosin markets.

The rosin market consists of TRO as well as gum and wood rosins, which show flat to declining growth. Although rosin is a mature market with little or no growth, reduced supply of TRO, coupled with growing demand for tackifying resins, posting an annual growth rate of roughly 3 percent, is leading to some tightness in the rosin market. Although demand for synthetic, petroleum-based hydrocarbon resins has surpassed its oleoresin counterpart, rising high crude oil prices put rosin resins on a competitive level in the tackifier and binder resins markets.

The supply of rosin is tied into pulp and paper production and forest production. Global production of rosin reached a modern record high of 1.2 million tons in 1997, but has since fallen off, with production reaching only 1.06 million tons in 1999, according to IDA.

"The rosin market is restricted by supply and not by demand. There is only a certain amount of rosin available in the world and that cannot be increased," says Mr. Stauffer. "The amount of tall oil rosin produced depends on paper-pulp production. Also, the supply of stump wood for wood rosin is exhausted and the gum rosin produced is restricted by the number of pine trees, which cannot be produced overnight."

Most of the rosin produced in the US is derived from tall oil. TOR accounts for 31 percent of crude tall oil (CTO) use and is obtained as by-products in the sulfate pulping of pine, commonly known as the kraft pulping process. The largest US producers of TOR are Arizona Chemical Company with total annual fractionation capacity of 455,000 tons in terms of CTO input. Westvaco is next with 230,000 tons, followed by Hercules Inc. with 170,000 tons, including its Burlington, Ontario, Canada plant. Georgia-Pacific follows with 120,000 tons of CTO production.

Production for both wood rosin and gum rosin has declined steadily in the US. At present, crude gum rosin is collected by small farmers and sold to a processor for cleaning and distillation that is highly labor-intensive. In the US, only Akzo Nobel Resins in Georgia is processing gum into gum turpentine and gum rosin that warrants higher prices due to its preferred characteristics.

Wood rosin production, on the other hand, is very expensive due to machinery and technology costs and as a result, only one company, Hercules Inc., produces rosin by this method at its Brunswick, Ga., plant. Early this year Hercules put its resins division on the block, and on September 14, Eastman Chemical Company announced its intent to buy Hercules' hydrocarbon resins and selected portions of its rosins resins businesses (CMR 9/18/00, pg.1). Also included in the sale are tall oil fractionation units in Savannah, Ga., and Franklin, Va., which will be operated under contract by Hercules. Resin operations at Hattiesburg, Miss., and Burlington, Ontario, will remain with Hercules where products will be produced for Eastman. Hercules' rosins resins operations at Brunswick, Ga., where wood rosin is produced, are not included in the sale but are pending to be divested.

The industry is not particularly worried about the pending acquisition's effect on the TOR supply. "I don't think the rosin market will be affected by this change of ownership since Eastman's Lawter International is a huge consumer of tall oil rosin and Hercules' CTO capacity will still be maintained by Eastman," says an industry source.

MARTEK Biosciences Corp. reports its European patent for docosahexaenoic acid (DHA) was revoked by the European Patent Office as result of challenges made by several potential competitors of the company. Martek plans to appeal the decision, and management believes that the outcome will not impact the company's sales into the infant formula industry.

PENRECO is increasing pricing on all USP, NF and technical grade white mineral oils by 20c. per gallon and all USP and technical grade petrolatums by 2c. per pound, effective October 30, or as existing contracts allow. Current customers of record will receive price protection on typical requirements through November 12.

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