Lard Oil Demand Falters in Wake of Weak Industrial Market

27 May 2002 00:00  [Source: ICB Americas]

Like most industrial oils, demand for lard oil in the industrial manufacturing sector has been affected by the weak economy during the last 18 months. Domestic consumption in lubricant production, lard oil's largest end use, has been flat to slightly down because of weak manufacturing output in automobiles, tools and appliances as well as declining demand in the US steel industry.

The loss of a US manufacturing in the metal working industry, which is a large market for lubricants, is a key factor for declining domestic industrial consumption. "More and more, companies are moving their production base in Mexico and overseas," says Ira Katuran, president of Neatsfoot Oil Refineries Corp., a major US lard oil producer. Neatsfoot Oil Refineries and Geo. Pfau's Sons Company Inc., are the only major lard oil producers in the US.

Mexico is the largest importer of US lard, says the US Census Bureau. However last year, US exports of lard to Mexico declined by 36 percent to 29,200 tons from 46,700 tons in 2000. Weak sales to Hong Kong last year were also largely responsible for a decline in US exports. Total US lard exports decreased 41 percent last year from 78,900 tons in 2000. The slowdown in global manufacturing and significant competition from other oils was blamed for the lower exports last year, says one industry source.

With the reduced consumption, lard oil prices were slightly lower in 2001, compared to 2000, according to most producers. Prices for lard oil in bulk for industrial use are currently in the low 30 cent per pound range. In 2000, lard oil prices ranged from the mid-30s to the low 40s.

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In contrast to lard oil, lard prices strengthened last year. Average prices for lard went up to 15 cents per pound last year, a 22 percent increase from the 12 cent per pound average in 2000. Lard's improved pricing was mostly from lower production as the overall hog slaughter was lower in 2001 compared to 2000, says one producer. "There was also an issue of fat being held back for sausage and hot dog production that reduced lard production last year," the producer adds.

Encouraged by lard's low prices in 2000, demand for lard in food use, which accounts for almost 80 percent of total lard use, went up in the later part of 2000. Edible lard consumption slightly went down after prices firmed in 2001. "Price is a main driving factor for lard demand," says one producer. "Other buyers use it on a regular basis, but some companies buy it only when the price is attractive."

Lard prices also typically spike up from late summer to early fall, says the producer. "During those times, prices spike up because of demand for baking products going into the holidays. The rest of the time, prices are driven by hog slaughter and the market dynamics of competing products."

Consumption for lard in baking and frying fats and in margarine production last year was 229.5 million pounds, down 8 percent compared to 249 million pounds in 2000, according to the US Census. Mean-while, consumption for inedible lard last year went down 27 percent to 69.4 million pounds from 94.7 million pounds in 2000.

Inedible uses for lard are mostly from the production of lard oil as lubricants for the metal working industry as well as in textiles. Hydrogenated lard oil can also be used as a base for various creams, ointments, lotions and emollients although consumer concerns on animal by-products have reduced the use of animal fats in the cosmetics and personal care market, according to an industry source. Lard oil can also be used as a nutrient and antifoam agent in the fermentation of various antibiotics in the pharmaceutical industry.

For this year, some producers see improving demand for lard oil as the US economy is said to be gaining strength. Others continue to see flat pricing and stable supply and demand for the rest of the year. "Lard oil is a mature market, and there is not a whole lot of dynamics in it," says Mr. Katuran. "There might be a slight change in prices, but it will not be significant enough. The supply trend for lard oil will also remain stable," he adds.

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