TOFA Outlook Improves on Tightening Vegetable Oils and CTO Consolidation

18 February 2002 00:00  [Source: ICB Americas]

Aided by changing market dynamics in the vegetable oil industry and restructuring in the crude tall oil sector, the tall oil fatty acid (TOFA) market is expected to strengthen this year.

Firmer vegetable oil prices are making TOFA more competitive, especially in the C18 oleic fatty acid market. Sunflower and rapeseed oils are seeing upward price movement following lower global production. Although soybean oil prices are still at historical lows, prices face upward pressure this year as soybean oil is filling the void left by low supplies of sunflower and rapeseed oils.

"The industry is forecasting strong demand for TOFA in 2002 to 2003," says one industry source. "The strengthening of the vegetable oil market is pushing competitive fatty acid prices to go up, and if the trend continues, it will support the increased demand for TOFA," the source adds.

The TOFA market showed signs of weakening in the second half of 2001, mainly because of the general economic slump. Poor market conditions, compounded by historically low prices for competitive vegetable oils over the past two to three years, have pushed TOFA consumers to move to lower-priced vegetable oil-based fatty acids. Historically, soybean oil-based fatty acid is TOFA's largest competitor in several market applications, especially for TOFA products under less than 2 percent rosin acids, which is largely consumed in the production of alkyd resins and dimer acids.

"There are some market applications where TOFA and vegetable-based fatty acids can be interchanged," says Gary McDermott, Eastman Chemical Company's product manager, rosins. "A number of factors have influenced the decision to substitute, with market pricing being one of them."

Currently, the price range for TOFA containing greater than 2 percent rosin acids is in the range of low to mid-20 cents per pound. Prices for TOFA with less than 2 percent rosin acids range from the mid-20 cents to low 30 cents per pound. Prices for TOFA were flat throughout last year and stabilized after a tight 2000, one producer says.

"The market began to normalize as the year progressed last year. Lowered demand in the second half of the year has been balanced by decreased supply as the industry typically takes refinery outages for routine maintenance in the third and fourth quarter," says the producer. "Production of raw tall oil in the paper industry also cyclically slowed down in the later half of the year helping TOFA maintain its balance."

Meanwhile, the changing landscape in the crude tall oil industry is also a potential factor for the strengthening of TOFA in 2002 to 2003. "With Eastman's plan of taking out 40,000 tons of tall oil fractionating capacity by next year, TOFA supply will tighten even further. Added to that is the continuous consolidation in the paper industry that affects production from a raw material standpoint," says one observer.

The US accounts for most of global TOFA production, with Arizona Chemical, Georgia-Pacific, Westvaco and Eastman Chemical as the main players. Global production of TOFA is placed at 400,000 metric tons annually, with European production pegged at 140,000 tons. The market's value is estimated at a global turnover of $240 million, with a medium price of $600 per metric tons for product delivered annually.

"Unlike commodity fatty acids, market figures for TOFA are rather stable as they are not influenced by seasonal or weather conditions often inflicted in agricultural products like vegetable oils," says Martti Fredrikson, president of Rauma, Finland-based Forchem Oy. "In terms of supply and use, the market often prefers TOFA before other vegetable fatty acids because of the secured local and industrial supply, wider applications, better reactivity and upgrading potential."

Most industry members consider TOFA more of a specialty fatty acid type because of its broad range of use, both in general oleochemicals applications and niche markets. TOFA, which is primarily composed of C18 oleic acid with small amounts of C16 and C20 acids, is used in a wide variety of applications. These include the manufacture of alkyd resins, dimer acids, hardeners for epoxy resins, metal working fluids, lubricating oils, hydraulic fluids, soaps and detergents, oil field chemicals, rubber compounding, plasticizers, wetting and emulsifying agents, flotation reagents, and other specialty applications. Histor-ically, alkyd resins are the major market for TOFA, accounting for 20 percent of the total use. About 7 to 10 percent of total output is used in soap and detergent manufacture.

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