30 May 2007 05:21 [Source: ICIS news]
By Jeremiah Chan
SINGAPORE (ICIS news)--Asia’s smaller fatty acid makers are worried that high prices of feedstock crude palm oil will force them to cut operating rates, or even shut down, due to poor economics. ?xml:namespace>
Rising palm oil, which hit a historical high of $800/tonne FOB (free on board) ?xml:namespace>
Triple pressed stearic acid (TPSA) offer levels have surged past the $1,000/tonne FOB (free on board) southeast (SE) Asia barrier this week, a marked increase from March prices of $720-750/tonne.
“It is very difficult for us as there is no visibility in the market at this point of time and we do not know at what levels we should peg our offers as feedstock costs are rising at a rapid pace,” a senior marketing official with a major Indonesian producer said.
“Our margins have been squeezed to such an extent that we barely break even on some offers. However, buyers say they are unable to afford our current prices,” he added.
Smaller plants will find it difficult to continue production and they might be forced to shut down temporarily or run at reduced operating margins as buying sentiment withered in the face of northbound prices, fatty acid makers said.
“It’s no surprise that small plants are being shut down, because they will be making losses if they continue production at current prices,” a Malaysian trader said.
However, the smaller 10,000-15,000 tonne capacity plants account for less than 10% of the market, and the impact on market supply would not be significant, traders said.
The largest producers in the region, which include IOI Oleochemical, Palm Oleo and Natural Oleochemicals with a combined capacity of close to 1.5m tonnes per year, are unlikely to be heavily affected.
A regional trader said that several derivative plants around the region have temporarily shutdown in recent weeks, as they are unable to absorb or pass the increased prices on to the end users.
“What has shocked market players is the consistent surge in the crude palm oil price. Everyone thought prices would rise for a few days, then consolidate,” a trader said.
Palm oil and oleochemical traders and producers blamed meagre harvests and the high export volumes into the Chinese market for falling inventories and soaring prices for feedstock.
Speculative trading in the crude palm oil futures market was another factor, they said.
Huge volumes of soybean oil and palm oil amounting to “hundreds of thousands of tonnes” were imported into the mainland
Crude palm oil was traded at an all-time high of $800/tonne FOB
With feedstock costs soaring, producers have been forced to increase prices in order to maintain margins, but consumers wary of the increasingly-volatile market have been buying just enough to meet requirements. Some market participants said they expected a downward correction in prices in the coming months.
Traders said the recent unpredictability of the volatile feedstock market has led to the validity period of offered quotes being shortened considerably. Suppliers are also apprehensive of committing to larger consignments because of the rapidly changing feedstock prices.
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