Asian oleochemical capacity continues to expand

Crouching Tiger

21 January 2008 00:00  [Source: ICB]

The oleochemical supply landscape is on the brink of another major shake-up, as China steps in with new capacity

Doris DeGuzman/New York

THE STAGE is being set for a new oleochemical capacity showdown - and it will be centered again in Asia.

China, a major oleochemical importer, is expected to have a total of 3.3m tonnes/year oleochemical capacity that includes fatty acid, fatty alcohol and glycerin refining by 2009, according to Cheah Seng Chye, assistant general manager, marketing, at Malaysian fatty acids and glycerin producer Acidchem International.

In his presentation at the ICIS World Oleochemical Conference, held last year in Brussels, Belgium, Cheah noted the state of overcapacity in Southeast Asia. In addition to the burgeoning Asian biodiesel industry, new oleochemical plants from China as well as in Indonesia, India, and Thailand will significantly crimp palm oil supply.

"The capacity growth in China and India is quite alarming," said Cheah. "They will have their own capacity and as such they will become major oleochemical producers and probably exporters as well. With the planned expansion coming, we are moving to a stage that will see an oversupplied industry."

China's fatty acid production accounted for 6% of world output in 2000 and is expected to increase to 30% by 2010, said Zhiguo Song, marketing director of Chinese oleochemical producer Dongma Palm Industry (Zhangjiagang). Song also presented at the conference.

"Step by step, domestic fatty acid in China will replace imported products," he said. "Chinese consumption of fatty acid has been increasing very rapidly in industries such as plastics, tires, textiles and paper making. With the increasing capacity, we expect the domestic market to become mature by 2010 and for producers to continue expanding overseas."

Dongma Palm estimated the growth rate of China's fatty acid industry at 8-10%/year. By 2010, the company expects fatty acid demand in China to be 880,000-960,000 tonnes/year.

FLAMING ALCOHOL

China's fatty alcohol industry is also ­facing significant capacity increases, with its total capacity expected to reach more than 700,000 tonnes/year by 2009, notes Acidchem.

Various sources cited companies such as Deyuan (Jiangsu) Hi-Tech (100,000 tonnes/year) Kerry Oils and Grains (45,000 tonnes/year) and Jiangsu YongLin Chemical Oil (20,000 tonnes/year) expecting to start their fatty alcohol operations in 2008.

The scheduled 2007 start-up of South African Sasol's 60,000 tonne/year alcohol joint venture (JV) with Singapore's Wilmar International Liaoyang Huaxing Chemical's 80,000 tonne/year expansion and Teck Guan's 100,000 tonne/year plant, all in China, have reportedly been delayed.

Other companies with new fatty alcohol production scheduled to commence in 2007 include Ecogreen Oleo (50,000 tonnes/year), Sawit Mas Group (160,000 tonnes/year) and Musim Mas (100,000 tonnes/year) in Indonesia Kuala Lumpur Kepong (KLK) in Malaysia (100,000 tonnes/year) Cognis Thai in Thailand (100,000 tonnes/year) and Oxiteno in Brazil (80,000 tonnes/year).

Oxiteno says the commissioning of its Camacari plant, which will produce fatty alcohols, fatty acids and refined glycerin, has been delayed due to the global capacity surge in the past few years. The plant is expected to start up in the first quarter of 2008.

"It turns out that the tidal wave of new oleo capacity is more of a series of ripples, as successive tranches of new capacity are commissioned over a period of multiple years," says Neil Burns, general manager for the recently-established Oxiteno USA. "This is good for all industry participants in the long run as the fears of an oleo capacity bubble can likely be mitigated as a result."

Acidchem estimates the current global fatty alcohol supply to be 2.3m tonnes/year and demand at around 1.7m tonnes/year. Global supply and demand for fatty acid is 9.5m tonnes/year and 6m tonnes/year, respectively. Of the above, 6m tonnes/year of fatty acid and 1.8m tonnes/year of fatty alcohol supplies are from Asia.

BIODIESEL FUELING UNCERTAINTY

China's growing biodiesel capacity, which is estimated to reach 3.1m tonnes/year by 2009 is another ongoing challenge.

In Malaysia, about 1m tonnes/year of capacity is being built, although a total of 4.6m tonnes/year were announced, said Cheah. "Together with India, China and the rest of Southeast Asia, we are expecting about 10m tonnes/year of biodiesel capacity, which will be almost the same capacity as in Europe."

The Asian biodiesel industry is already 40% oversupplied without the new expansion coming in, he added. "If 10% of these new biodiesel plants are to start up, they will generate about 120,000 tonnes of crude glycerin, which is already oversupplied."

Glycerin refining capacity in Southeast Asia and China, both existing and under-construction, is estimated to reach a total of 635,000 tonnes/year, according to Acidchem. China is expected to have total glycerin refining capacity of around 240,000 tonnes/year - almost equal to that of Malaysia.

"Rising glycerin refining capacity in China will eventually lead to a reduction in imports of USP [United States Pharmacopeia] grade glycerin," Song noted.

"So far, Chinese medicine and food organizations still take 98% USP grade as the standard, but new factories are increasingly producing 99.5% grade. In the near future, domestic output of 99.5% glycerin basically can satisfy the demand."

In the US and Europe, glycerin refining capacity is tight, according to several industry sources.

Belgium oleochemical producer Oleon has joined biodiesel producer Diester Industrie in building a 30,000 short ton/year (27,216 tonne/year) glycerin plant in France.

In the US, around 100m lbs/year (45m tonnes/year) of glycerin capacity will come on stream this year from food and agricultural product producer Cargill, agricultural processor Archer Daniels Midlandand fatty acids producer Twin Rivers Technologies (TRT).

TRT's Scott Chatlin says the expansions will fill the gap in glycerin refining and should bring the US into balance. Aside from the 40,000 tonne/year refinery, TRT also plans to restart its existing 80,000 tonne/year fatty acid production in Quincy, Massachusetts.

"Historically, refining capacity had not been installed because there was not sufficient domestic crude glycerin available. This has changed as North America has probably enough crude glycerin with the growth of biodiesel," says Chatlin.

"The new refined glycerin capacity will definitely help the US market under the current dynamics," says Guillermo Schnitzler, fatty acids manager, Americas, at Uniqema, a subsidiary of UK-based specialty chemicals producer Croda. "If the current conditions tend to last well over a year, we believe that further investments can be expected. One foreseeable short-term outcome will be the need for less refined glycerin imports into the US."

Oleochemical investment in the US could be difficult to justify, however, because of the high cost of fats and oils, energy and transportation, says Bob Drennan, vice president of US pharmaceutical and nutraceutical marketing firm Vitusa Products.

"Even if a company were to be brave and decide to build a glycerin plant, it would take 12 months to bring on stream from ground-breaking," he says. "The Western biodiesel industry is also bearish now and is not generating enough crude glycerin. They're unlikely to invest in new glycerin plants until the industry is on a sounder economic footing."

In 2007, North American glycerin refining capacity is estimated at 200,000 tonnes/year and demand at 295,000 tonnes/year, according to Uniqema. Global oleochemicals producer P&G Chemicals holds 45% of the total capacity, followed by global specialty chemicals producer Cognis Oleochemical (16%), Croda/Uniqema (13%), Chemtura, of the US (7%), Germany's Evonik (4%), Henkel/Dial, also German (7%), Cargill (7%) and others (1%).

CONSOLIDATION CONTINUES

Further consolidation and restructuring in the industry took place in 2007.

The year started with news of IOI Oleochemical Industries buying Malaysia's Pan Century Wilmar acquiring the Malaysian Kuok Group's related oleochemical assets and Golden Hope (now part of Sime Darby), being acquired by CIMB Investment Bank of Malaysia.

Malaysian agricultural land developer FELDA Holdings even crossed the ocean last year and bought TRT. Croda's acquisition of Uniqema in 2006, meanwhile, resulted in the sale of Uniqema's oleochemical unit in Klang, Malaysia, to Palm Oleo, a subsidiary of KLK.

KLK was very much in a buying mode with its acquisition of Swiss nonionic surfactants maker Dr. W. Kolb Holding, German oleochemicals distributor F. Holm Chemie Handels in 2006, and Chinese fatty amines producer Shanghai Jingwei Chemical in 2007.

In Europe, Italian chemical company Snia bought Undesa of Spain last year, while rumors are ongoing regarding Cognis' sale of its 50% stake in Cognis Oleochemicals to an Asian investor.

Other Western players are forming JVs instead with their Asian counterparts. Last year saw German fatty acids producer Peter Greven Fettchemie and IOI Oleochemical Industries form Peter Greven Asia, which will ­produce and distribute metallic ­stearates.

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