22 November 2004 00:01 [Source: ICB Americas]
The US tall oil market remains in balance this year, but fractionators are closely monitoring crude tall oil (CTO) supply. Some producers in the pulp and paper industry are being pressured to use CTO as an alternative energy feedstock because of continued high petroleum oil costs. Most fractionators, however, note that unless crude petroleum prices exceed $60 per barrel, higher quality CTO as a chemical feedstock will still be a more attractive option for producers.
“There are a few mills that are burning CTO, but this is not an uncommon practice in the industry,” says one fractionator. “In order to burn CTO however, some paper mills have to spend capital and more importantly address permitting issues with state agencies, and this is not an easy process.”
“There has been a lot of talk about burning CTO, but so far the actuality of it happening has been minimal,” says another fractionator. “Sharp increases in energy prices could obviously create a situation where there’s more incentive in the use of CTO as a fuel. As an industry, we fractionators need to make sure that it doesn’t become attractive long term for suppliers to burn good quality stock.”
In Europe, CTO has frequently been used as alternative energy source given the tax credit incentives being offered for burning non-fossil fuels. Some paper mills in North America are also using CTO as fuel. “If you look at Northern Canadian mills where the quality of the material for use as a chemical feedstock is significantly lower—hence their pricing is also lower—and the logistical cost of getting it to a fractionator is higher, most of those mills burn CTO on a fairly regular basis,” says one fractionator.
Demand for tall oil fatty acids (TOFA) has improved this year, while consumption of tall oil rosin (TOR) in sizing and printing ink markets is reported to have strengthened as well. As a result, fractionation rates have improved, rising to the current low- to high-90 percent range in the last half of the year, compared to fractionation rates of between 80 percent and 90 percent earlier in the year.
For the period of January to September 2004, CTO consumption for TOFA production rose 10 percent to 1.14 billion pounds, compared to the year ago result of 1.04 billion pounds, according to the US Census Bureau. Total tall oil consumption in industrial applications within the same period was 1.22 billion pounds, 8 percent higher than last year’s 1.12 billion pounds.
“Consumption in the US for CTO derivatives has been pretty good as overall business conditions have improved,” says one fractionator. “Demand will probably remain strong for finished products, especially for TOFA. CTO should remain in balance, with pricing probably going to increase in the first quarter,” he adds.
CTO pricing has remained flat for the past two years within the rangeof $90 to $100 per ton. Pricing for TOFA and TOR has also been stable throughout 2004. One fractionator notes prices for derivatives should remain flat for the first half of 2005, although another fractionator points out the pressures being felt within the overall tall oil market. Pricing for TOFA with 2 percent or more rosin acids is currently in the mid-20 cent-per-pound range, while the price of TOFA with less than 2 percent rosin acids is at the low-30 cent-per-pound level.
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