FocusAsia oleochemicals suffer on volatile CPO

05 March 2008 04:30  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--Fatty acid demand in Asia is coming off sharply due to volatility in upstream vegetable oil markets, producers and traders said on Wednesday.

Feedstock crude palm oil (CPO) prices ended a record-breaking run on Tuesday with benchmark May-delivery futures falling on the Bursa Malaysia on Tuesday.

They plummeted to ringgit (M$) 4,091/tonne ($1,268/tonne) at the close, after hitting a historical high of M$4,486/tonne earlier in the day.

Bearish sentiment has continued to Wednesday, as the May CPO retreated to M$3,951/tonne at 0336 GMT, a M$148/tonne drop from last evening.

Some market sources attributed the sudden drop to profit taking as speculative funds quickly liquidated their positions. Others felt that the highs over the past few days were unsustainable.

“There would be demand destruction at current palm oil price levels,” Henri Bardon, managing director of ethanol trading firm Vertical Asia, said. This, combined with fears of an impending recession would drag palm oil prices down, he said.

The turmoil in the vegetable oils market has hit downstream industries, with buyers of derivative fatty acids quickly sidelined by the rapidity of the price movements.

“Fatty acid sales have come to a standstill this week,” the senior official of a fatty acid production unit in Malaysia said, adding that with “the market in shambles,” there was no buying interest among end-users with most players simply adopting a wait-and-see stance.

Despite CPO appearing to have come off highs, demand remained lacklustre at current levels, he said.

Other producers agreed, with the marketing official of a fatty acid plant based in Indonesia saying that she had difficulty selling cargoes, as buyers insisted that current offers for fatty acids were too high to accept.

A regional oleochemical trader said that the demand for fatty acids would only recover if raw material prices fell further and find some stability. Only then would buyers return to the market, he said.

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

($1 = M$3.18)

Anu Agarwal contributed to this article.

By: Jeremiah Chan
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