21 January 2009 07:17 [Source: ICIS news]
By Jeremiah Chan
SINGAPORE (ICIS news)--Asian refined glycerine offers rose $50-70/tonne (€38.5-53.9/tonne) this week due to tighter supply stemming from production cuts implemented by oleochemical manufacturers, market sources said on Monday.
Offers were at $500-550/tonne FOB (free on board) SE (southeast) Asia for drummed parcels, from around $450-480/tonne FOB SE Asia in December.
Operating rates at several oleochemicals production units in Asia have been slashed due to low buying interest from downstream end-users and weak demand for biodiesel amid the global credit crunch and economic downturn, sellers said.
The tumbling crude oil values have rendered vegetable oil products less attractive compared to conventional fossil fuels.
With one unit of glycerine produced for every 10 units of oleochemical/biodiesel manufactured, producers who had lowered their operating rates due to the poorer demand for their core products found their glycerine inventories much lower than before.
Several sellers took this opportunity to raise their spot offers given increased buying enquiries.
Producers were adamant on implementing the price hikes, with one Malaysian-based seller taking a "take-it-or-leave-it" stand after continuously getting bids at the low-$400s/tonne FOB Malaysia from some of his customers in south Asia.
"If they think they can get better prices from other sellers, I tell them, by all means, go and buy from them," the producer said, pointing out that they had little inventory pressure or urgency to offload their glycerine cargoes.
"Biodiesel production is bad, and I hear that oleochemical plants are only running at 50-60% of their capacities," he added.
One regional oleochemical trader pointed out that the current tightness was a "psychological shortage". He added that while producers were no longer as willing to offload cargoes at the lower prices seen in recent months as their inventories were lower, demand had also been drastically reduced.
"They can try to increase their prices, but they must understand that there will be stiff resistance as demand has dropped significantly," he said.
A trader in Singapore also said that low-priced glycerine cargoes were harder to obtain now due to strict price discipline from most sellers who raised their offers in tandem. On the other hand, he also pointed out that transactions at the current asking prices of various sellers above $500/tonne FOB SE Asia were thin.
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