08 January 2009 00:00 [Source: ICB]
The US glycerin and fatty acids markets could see a revival in 2009, after recent precipitous price declines
Ben Lefebvre and Greg Holt/Houston
IT WAS a rollercoaster ride for all US commodities in 2008, not least in the soaps and detergents key raw materials market.
The US glycerin market, after seeing prices fall for nearly six months, could be set for a rebound in the first half of 2009.
Glycerin spot prices reached a peak in the second quarter of 2008, with tallow material hitting a high of 80.5 cents/lb ($1,775/tonne) and vegetable glycerin posting $1.05/lb, according to global market intelligence service ICIS pricing. Prices then dropped continuously after supply/demand fundamentals skewed the market long.
China's third-quarter exit from the market started the downward trend. The absence of what was once the largest foreign buyer of US glycerin led to a glut of domestic material.
This was exacerbated as imports from Asia and Europe increased and the saturation of glycerin in the market caused US producers to cut spot prices repeatedly in an effort to clear their inventory.
Prices for tallow glycerin and vegetable glycerin, which made a rare convergence in October, are hovering at between 38-50 cents/lb. They will likely rise again and have their traditional 5 cent/lb spread reinstituted in 2009, according to buyers and sellers.
Contract prices for the first quarter of 2009 are expected to drop by nearly half to reflect the fourth-quarter fall in spot prices. The spot market could tighten in the first quarter of 2009, however, as domestic prices fall to a level that foreign suppliers may find unattractive and the US market sees an end to the seasonal fourth-quarter falloff in demand.
Clouding the picture is the ailing global economy, which has many market participants questioning how much orders can be expected to increase in the first quarter. But troubles in the US biodiesel market could cause suppliers there to close shop, potentially cutting supply of crude glycerin and adding upward pressure to refined glycerin pricing.
HOPE AND FEAR
Participants in the US fatty acids market are looking to 2009 with a mix of hope and apprehension.
In 2008, feedstock costs and demand were the most significant factors influencing prices, as tallow and vegetable oil followed the upward trajectory of crude oil and other commodities for most of the year.
Yet by the end of the year, these dynamics had made a sharp turnaround, and both producers and buyers were left wondering how low prices and demand would fall.
In the C18 oleic acid sector, for example, contract prices at the start of the year averaged 57.5 cents/lb. These prices increased steadily to 80.5 cents/lb by October, but had dropped back to 76.5 cents/lb as of mid-December, according to ICIS pricing. Further price declines are expected.
C18 stearic acid prices followed a similar trend this year, largely influenced by feedstock tallow values. Producers have successfully tempered price declines so far, citing the erosion of profit margins as feedstock costs rose for much of the year and the expectation that they would be able to make up the difference as prices fell back.
More dramatic losses were seen in the C16 palmitic acid sector - a volatile market driven largely by feedstock vegetable oil prices in southeast Asian production centers.
When feedstock costs dropped off in the fourth quarter, palmitic acid prices plunged by 11 cents/lb from the low 70 cents/lb range to the low 60s.
Although some producers expect feedstock costs to rebound in early 2009, it is unclear what impact the deteriorating economy will have on fatty acid demand.
Fatty acid demand has already eroded by 20-25% during the fourth quarter, largely due to declining US auto production and low construction activity levels. On the other hand, demand for fatty acids from the personal care sector appears to be more resilient.
Participants say the first quarter of 2009 will be a challenging period, but express hope that the industry will emerge with a brighter future ahead.
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