FocusVolatile CPO hits Asia oleochemicals

17 January 2008 05:06  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--Asian oleochemicals demand is suffering due to record high feedstock crude palm oil (CPO) prices, producers said on Thursday.

CPO futures for April delivery traded on the Bursa Malaysia closed at an all time high of ringgit (M$) 3,414/tonne ($1,047/tonne) on Monday before easing. It was at M$3,263/tonne on Wednesday evening on lower crude oil values and profit taking, traders said.

Despite the slight dip over the past three days, CPO is still considered by most end-users to be extremely steep. CPO prices have leapt by 68% over the past year, with futures traded at M$1,943/tonne just one year ago.

With little choice but to pass on the additional costs to end-users, producers of downstream derivatives such as fatty acids and fatty alcohols - already facing squeezed margins - hiked offers for their cargoes.

The move sidelined buyers, resulting in plunging demand for cargoes.

“We will quote [our fatty acid offers] to the buyers, but they say it’s too high and they don’t get back to us,” the marketing official from an Indonesian fatty acid producer said, adding that they were mulling cutting back on production rates in the wake of such poor demand.

An official from another regional oleochemicals producer based in Malaysia concurred that they had to raise offers, or risk making losses for every fixture made.

“We have had to raise our prices, otherwise there’s no point for us to carry on production,” the official said. However, even at minimal margins, most buyers could not accept the current offers, preferring to look to cheaper alternatives or buying only minimal quantities, she added.

Amidst the gloom in the industry however, soaring glycerine prices appear to be the silver lining for most oleochemical makers.

Refined glycerine prices were assessed at $1,750-1,860/tonne FOB (free on board) SE (southeast) Asia on Wednesday, according to global chemical intelligence service, ICIS pricing.

This was a jump of more than 200% from levels seen in January last year, when it was traded at $580-600/tonne.

“Glycerine [sales] is the only reason why our plants have not shut down yet,” a fatty acids producer based in Malaysia said.

He emphasised, however, that refined glycerine production was only 10% of the total volume of fatty acids manufactured, thus limiting the relief which the higher glycerine prices brought to oleochemical manufacturers.

“It is a very difficult time now for producers like us,” the marketing manager of a major oleochemicals producer said with a sigh, summing up the sentiment seen in the industry.

Major oleochemical producers in Asia include IOI Oleochemical, Kuala Lumpur Kepong, Musim Mas and Cognis Oleochemicals.

($1 = M$3.27)

By: Jeremiah Chan
+65 6780 4359

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