30 January 2006 00:00 [Source: ICB Americas]
THE GLOBAL oleochemical industry continues its transition, with activities ranging from capacity expansions, plant closures and shifts in supply and demand sources.
Asia continues its massive capacity expansions, which could lead to further margin pressures for those unable to compete with cheaper Asian oleochemical materials. This drove US and European producers to join their Asian counterparts in a supply alliance and/or to optimize their operations through plant closures. Others have considered divesting their businesses altogether.
Akzo Nobel’s oleochemical business is on the block since 2004. Akzo recently divested its 65% stake in its Malaysian oleochemicals joint ventures to its partner Lam Soon Group. Sale of its oleo operation in Emmerich, Germany, is also in progress.
Cognis’s newly established oleochemical subsidiary, Cognis Oleochemicals LLC, formed a 50–50 joint venture with Golden Hope Plantations Bhd of Malaysia last year. The new company says more investment and expansion is expected in the future.
In the US, Twin Rivers Technologies ceased its 150,000 ton-per-year fatty acid output in Painesville, Ohio, and plans to use the site for biodiesel production. Twin Rivers will source some of its supply from a US and Malaysian producer, and will also increase fatty acid production in Quincy, Mass.
Agribusiness major Cargill is entering the US glycerine market in April with its 30 million pound-per-year glycerine refinery in Iowa. Archer Daniels Midland, meanwhile, is planning to consume some of the crude glycerine that will be produced in its planned biodiesel facility in North Dakota, as feedstock for future polyols production.
And Asian players are crossing the ocean to get closer to their customers. India’s VVF Ltd. opened its US office in New Jersey last year to establish the company’s North American oleochemical activities. Further distribution expansion in the US
VVF started its 100,000 ton-per-year fatty alcohol plant last year and is also expanding fatty acid capacity with two new facilities planned for the first quarter of this year.
Petrochemical-based competitors are not immune to the oleochemical market’s ongoing changes. Dow Chemical is ceasing production and marketing of synthetic glycerine from its Freeport, Tex., plant, effective January 31. The company blamed the continued unfavorable environment for glycerine.
“The plant is no longer sustainable given that market conditions for glycerine are not expected to change,” a Dow official notes. “Biodiesel has flooded the market with surplus glycerine, causing prices to plummet significantly. Meanwhile, total operating costs continue to increase. This, coupled with low demand in the marketplace for synthetic glycerine, makes it ever [more] difficult to sustain operations.”
Dow adds that it is already using natural glycerine as feedstock for the production of its polyurethane polyols and polyglycols in Texas. The company is still producing synthetic glycerine in Stade, Germany, and says it has no plans to exit the business as of yet.
Sasol is expanding its alcohols portfolio with the construction of an oleo-based fatty alcohols plant in China through a joint venture with Wilmar Holdings Pte. Ltd. The 60,000 ton-per-year plant in Lianyungang is expected to start up in mid-2007. Sasol currently produces alcohols from petrochemical, oleochemical and coal raw materials.
“We want to maintain our leading alcohols position by increasing our business in the developing regions and continuing to invest in our diversified technology platform,” says Mike Clark, director of sales and marketing for Sasol’s alcohols & surfactants. Sasol is also building an ethylene pipeline and debottlenecking their Ziegler alcohol operations in Brunsbuettel, Germany.
In Camaçari, Brazil, Ultrapar Participações SA is building, through its specialty chemical subsidiary Oxiteno, an 80,000 ton-per-year fatty alcohols plant. The $94 million plant, considered the first oleo-based alcohols plant in Latin America, will also coproduce fatty acid and glycerine.
The oleochemical market did not escape from the environment of rising energy, fuel and transportation costs.
One producer says rising natural gas prices has added around $20 million to $30 million in annual operating costs for the US fatty acid industry, which further depressed profitability. Higher fats and oils costs and glycerine price erosion made it worse.
“Glycerine realization and the cost of energy and transportation will continue to weigh on costs in the industry,” says Norman Ellard, director of global sales at P&G Chemicals. “There may continue to be consolidation of capacity in a world of much higher energy costs.”
“The fatty acids industry could no longer operate at the margins it had, due to the shift toward higher energy and structural costs,” says Carol Collier, Uniqema’s marketing manager, oleochemicals. “Demand, however, remained in-line with North American supply driven by strong housing starts, good auto sales and a strong pull in consumables.”
US fatty acid prices increased by 5% to 10% during 2005. Prices in North America and Europe are said to be firming slightly although still not enough to compensate for weak glycerine prices. Asian fatty acid prices remained under pressure due to new capacities coming on stream.
High feedstock costs and a tight supply-and-demand balance raised alcohols prices in the first half of 2005. “Prices have softened in the second half of the year, and 2006 looks to be a fairly balanced year,” says Victoria Meyer, Shell Chemical’s global marketing manager, alcohols and derivatives.
Current alcohol pricing is said to have slightly rebounded with some firmness in the spot market. Oleo players, meanwhile, note some demand shift towards oleo-based alcohols coming from the personal care and detergents markets.
“The drivers are economic and strategic as the pricing and availability of oil and natural gas continues to cause concern throughout the entire chemical value chain,” says Neil Burns, VVF’s vice president of US operations. “The shift to oleochemicals in the detergent industry is already taking place at the largest accounts.”
Glycerine and fatty acid are also benefiting from higher petro-based materials. “Glycerine has currently become the most competitive feedstock for polyol use. Substantial substitutions and new applications are ongoing,” says Klaus Nottinger, director, marketing and sales, for Cognis Oleochemicals GmbH. “New use for fatty acids as alternatives for petro-based materials are also under evaluation due to their attractive prices.”
Uniqema is already selling fatty acids and glycerine to customers who previously used petroleum-based products. Other alternative-use projects are currently in the works.
“Significant potential exists to utilize fatty acids over waxes while others are considering the use of glycerine instead of propylene glycol,” notes Maarten Heybroek, marketing director for Uniqema Europe.
Other industry concerns are the effects of REACH and the renewable energy policy in the EU. The impact of REACH for oleochemicals is likely to be varied, says Graham Beesley, director of P&G Chemicals Europe and president of the European Oleochemicals and Allied Products Group (APAG). “The authorization process, however, is unlikely to be applicable to most products in the oleochemical family,” he adds.
APAG says it continues its advocacy program to ensure the availability of fats and oils as feedstock to the industry. Steady biodiesel growth in the EU has severely impacted the oleochemicals market via glycerine oversupply and higher feedstock price.
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