FocusAsia-to-Europe glycerine arbitrage opens

24 October 2007 05:30  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--Despite the domestic shortage in refined vegetable glycerine, Asian producers are finding it more profitable to export quantities to Europe due to higher prices there, producers and traders said on Wednesday.

Demand for Asian glycerine is picking up even more as tight supply in Europe partly on the back of spiralling feedstock vegetable oil prices has encouraged end-users to turn to producers in this region for their purchases.

The global glycerine shortage looks set to stay for the next few months or at least until biodiesel production becomes feasible again, producers and traders said.

What has become more interesting, however, is the sheer difference in prices between the Asia and Europe, they said.

“China used to be the key driver of prices here in Asia, but market dynamics have changed and as producers, we have to target higher priced markets,” a marketing official from a major glycerine producer based in Malaysia said.

He added that he wouldn’t be surprised if European spot prices hit €1,400/tonne ($1,996/tonne) FD (free delivered) NWE (northwest Europe) in the near future.

Bulk vegetable refined glycerine sold in Europe was assessed at €820-920/tonne last week, according to global chemical intelligence service ICIS pricing, although some traders said that European spot supply had shrunk to such an extent that it was now a sellers’ market.

“I can comfortably sell refined glycerine to the European market at $1,430/tonne FOB (free on board) Malaysia,” the official said, adding that he had already fixed “several hundred tonnes” of glycerine packed in iso-tanks to Europe this month.

Buying ideas in Asia, meanwhile, were at least $100-200/tonne lower, according to other producers.

“It’s still very difficult to sell material in Asia above $1,300/tonne, and our regular customers are still unable to accept such high prices,” a regional glycerine producer said.

An oleochemicals producer based in Indonesia said that the stronger purchasing power of the Europeans had helped to boost glycerine prices.

“The Euro is much stronger than the US dollar now, so I wouldn’t be surprised if they [the Europeans] can pay high prices for imported cargoes,” she said.

Refined glycerine sold in drums was assessed at $1,250-1,300/tonne FOB SE (southeast) Asia last week, representing a $50/tonne increase week-on-week.

Drummed material usually carries a $100-110/tonne premium over bulk cargoes.

However, prices in the region appeared to have reached a plateau as most other end users and traders in Asia were unable to afford the skyrocketing glycerine prices seen in recent months.

“We have been able to pass a portion of the hike in prices over to our end-users so far,” the purchasing manager of an Asian downstream alkyd resin producer said, although she added that buying sentiment was expected to fade quickly if prices rose any further.

Until then, producers said they would continue to sell their cargoes to the highest bidder as long as arbitrage remains profitable.

“Why leave money on the table?” the marketing official of a glycerine producer based in Malaysia said.

Major producers of glycerine in Asia include Musim Mas, Cognis Oleochemicals, Proctor and Gamble, IOI oleochemicals and KLK.

($1 = €0.70)

By: Jeremiah Chan
+65 6780 4359

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