Palm oil prices surge squeezes biodiesel industry

23 April 2007 08:05  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--Palm oil prices crossed the psychological $700/tonne FOB (free on board) Malaysia level to reach a 8-year high, threatening to further squeeze margins for the biodiesel industry, Asian producers said on Monday. 

Front month futures for refined bleached and deodorised palm oil were pegged at $707/tonne on Monday, as strong seasonal demand and anticipated tight supply during May drove numbers upwards. 

This was up from $592-595/tonne during the second half of  March and was putting a big strain on biodiesel production, said a regional producer.

Palm oil is a feedstock for biodiesel, and higher prices are eating into the profit of several biodiesel producers who only moved into the industry recently as high oil prices pushed users to explore alternative fuels. 

Peak season demand from the food and fuel sector and high soybean oil prices in the US have pushed palm oil prices higher here, an Asian biodiesel maker said. 

Biodiesel prices, however, have not risen in tandem with palm oil prices, Asian sellers said. Biodiesel prices have been largely stagnant at $720-730/tonne FOB SE (southeast) Asia, even as sellers increased offers to $800/tonne. 

Falling methanol prices may offer some respite. Methanol is the other raw material used in the production of biodiesel although its use is just 10% compared to the 90% of palm oil. 

Regional methanol prices have fallen by nearly 50% to $265-275/tonne CFR (cost and freight) SE Asia, according to global chemical market intelligence service ICIS pricing. 

Another factor which several biodiesel producers were eyeing favourably was the increasing prices of crude glycerine. Crude glycerine is a co-product formed during biodiesel production.

Until recently, most biodiesel producers had been uanble to realise any profits from selling crude glycerine amid an oversupply of the same and a shortage of glycerine refining capacity.  

Recently, however, crude glycerine prices have strengthened and some Asian sellers said they can sell it at $130-150/tonne ex-works compared to $100-120/tonne CFR China which they had been selling earlier. 

Increased demand for crude glycerine has been forecast with companies like Dow building “green” epichlorohydrin (ECH) plants in China which would use crude glycerine as a feedstock. 

Dow had recently announced plants to build a 150,000 tonne/year ECH plant in China which would be ready in 2009-10.

By: Anu Agarwal
+65 6780 4359

< previous article(VIDEO – ICIS news Americas Lunchtime Bulletin 2 November 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly