Europe Q4 fatty acid prices to rise in line with tallow fat

18 September 2009 16:16  [Source: ICIS news]

LONDON (ICIS news)--Fourth-quarter contract prices for tallow-based fatty acids are likely to rise from the third quarter due to increases in the price of tallow fat, market sources said on Friday.

Producers said that increases in the price of tallow fat, which were announced earlier this month by fat renderers, would need to be reflected in the price of its derivatives.

Many buyers agreed, saying they were prepared to accept higher fatty acid prices as long as the increases were in line with those of tallow fat.

Prices of high-quality tallow fat, with a free fatty acid content of 2-10%, has increased by around €20-30/tonne ($29-44/tonne) from the third quarter, sources said.

Most players said they felt it was too early to divulge absolute price targets, but the consensus view from producers and traders was that tallow-based fatty acids should increase by around €20-40/tonne from the third quarter.

Several sources said it was important to note that only the high-quality tallow fats had increased in cost, whereas fat with a free fatty acid content of more than 15% had remained fairly steady since early in the third quarter.

As a result, only fatty acid grades using the higher-quality fat should be subject to price increases, sources said.

The low price of glycerine – a by-product of fatty acid production – was also putting upward pressure on fatty acid prices, as many producers said they were keen to make up lost glycerine revenues with further increases in fatty acid prices.

Producers complained of tight production margins and said it was vital to recoup losses wherever possible.

“Profitability is the lowest it’s been for the last two or three years…margins have dropped [since the global financial crisis] by 20% or 30%,” said one producer.

Although many fatty acid buyers said they were opposed to the idea of absorbing producers’ lost glycerine profits, producers said they were quietly optimistic that increased demand would allow them to do so.

Demand was varied depending on the end-user industry, sources said.

But all sources agreed that, in general, demand has markedly improved since the third quarter, with most producers operating at full capacity.

Some even claimed consumption had reached levels seen before the financial crisis, although this sentiment was not shared by all.

With palm-based fatty acids, sources were less unanimous in their predictions for fourth-quarter prices.

Despite currently hovering around €30-50/tonne above figures seen three months ago, crude palm-kernel oil prices fluctuated to such a degree during this time that many sources ssaid they were unsure of the price on which to base fatty acid contracts.

Some producers said they were confident that crude palm-kernel oil prices had more or less stabilised, and were thus targeting a fatty acid price rise of around €30/tonne.

Other producers said they took into account the price movements over the past few months and were prepared to introduce a more modest fatty acid price increase.

Still other producers said they were even prepared to offer a rollover in prices from the third quarter.

Several producers and traders noted that, where possible, many buyers were switching to palm-based fatty acids because of the high cost of tallow products.

($1 = €0.68)

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By: Ross Yeo
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