05 May 2009 10:22 [Source: ICIS news]
SINGAPORE (ICIS news)--Asian fatty acid producers are experiencing squeezed margins due to price increases over the past few months for the feedstock vegetable oil, fatty acid traders and sellers said on Tuesday.
The benchmark July delivery crude palm oil (CPO) futures contract was traded on the Bursa Malaysia on Tuesday at ringgit (M$) 2,694/tonne ($763/tonne), representing an increase of M$816/tonne, or 43%, from the price three months ago.
This led fatty acid producers to hike their offers in a bid to pass the additional production expenditure to end-users, with several producers pointing out that raw material values formed the bulk of their manufacturing costs.
With prices of by-product refined glycerine remaining largely stagnant in the face of tepid demand, the "glycerine credit", or the returns which fatty acid manufacturers enjoy from glycerine sales, was also lacklustre, sellers said.
One unit of refined glycerine is produced for every ten units of fatty acids.
Most downstream buyers said they had taken a wait-and-see approach, preferring only to procure minimal quantities amid speculation that the higher prices would not last long.
When CPO prices dipped during the second half of 2008, most fatty acid manufacturers experienced a string of defaults as buyers who had booked cargoes at higher prices earlier went back on their contracts due to the ready availability of lower-priced material.
A Malaysian fatty acid producer said that they were requesting for a 20% deposit for fresh fixtures and were selling forward-month cargoes only to their regular customers.
With buyers purchasing only to cover their immediate requirements and sellers being choosy about their customers, market sources concurred that fresh trade in the fatty acids spot market would remain weak until the volatility in upstream values eased.
"What this market needs now is stability," a regional trader said.Fatty acid majors in Asia include IOI Oleochemical, Wilmar, Kuala Lumpur Kepong (KLK) and Musim Mas.
($1 = M$3.53)
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