FocusUS glycerine market seeks direction in Q4

18 August 2008 18:45  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)--With the US glycerine market currently in a sideways pattern, market participants are split as to whether the next quarter will bring still waters or rolling rapids, sources said on Monday.

Factors as diverse as European’s fuel-buying habits and what the Chinese will do after the Olympics have led market players to debate whether the market is set for a tightening or current soft conditions would continue.

“In the fourth quarter, chances are prices could soften, but depending on what happens in biodiesel, they could do the opposite,” said one producer, echoing the uncertainty heard from buyers and traders.

Demand for glycerine, used in products ranging from anti-freeze to soap to animal feed, has been beset by the usual summer slowdown. Spot prices for vegetable-based material were assessed at 75-85 cents/lb ($1,653-1,874/tonne or €1,124-1,274/tonne) delivered on 13 August, according to global chemical market intelligence service ICIS pricing, a 10-cent/lb drop from the previous month.

A relative lack of tallow-based glycerine has made spot deals rare, but one trader described offers in the 40s cent/lb range, down from the July contract price of 70-80 cents/lb.

What happens to the market next has been debated, however.

The biggest variables are production of biodiesel and whether Chinese merchants will come out of the Olympics with a big buying mandate. But even the variables have variables, buyers and sellers said.

Renewable fuel mandates in Europe mean production of biodiesel – and co-product crude glycerine – should be high, leading to plenty of glycerine in the market.

But that could be negated by overall commodity prices, which are still at elevated levels despite the recent downturn. September soybean oil was being traded in the mid-50s cents/lb on the Chicago Board of Trade (CBOT) on Monday, down from the record high of 68 cents/lb in early July but still above the low 20s cents/lb range seen in 2005-06.

These higher feedstock prices have left the future shaky for biodiesel producers dependent on soybean oil and could lead to further plant shutdowns and a crude glycerine supply drop, sources said.

In Asia, sellers’ glycerine inventories are high as China, the largest regional buyer, has remained quiet during the August Olympics in Beijing. If it remains so long after the games’ closing ceremony, sources said, glycerine prices could continue to drop.

“We’re still waiting to see what will happen after the Olympics are over. When China opens up their ports again, will it open up its spigots?” a seller said.

Asian glycerine was assessed at $870-950/tonne CFR (cost and freight) northeast Asia on 13 August, according to ICIS pricing, down from more than a $1,120-1,150/tonne four weeks earlier.

But if the country has merely been waiting to buy discounted material in September or October, other regions could see price hikes when they go to buy their own, sources said.

“Everybody’s watching the scene,” a trader said. “No one trusts the market right now, so people are wary.”

($1 = €0.68)

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By: Ben Lefebvre
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