US glycerin prices ready to rocket, fatty alcohols and acids see upward pricing pressure

Set for takeoff

18 January 2010 21:40  [Source: ICB]

A severe supply crunch emerges in the US glycerin market, while fatty alcohol and acid prices face upward pressure

Ben Lefebvre and Judith Taylor/Houston

THAT RUMBLING noise US glycerin market participants are hearing is prices getting ready to launch like a rocket in 2010. And it's going to be a wild ride.

 Rex Features/Chris Eyles
After a few quiet quarters of respite, in which glycerin prices were relatively steady after a dramatic ride up and then down amid the commodity bubble of 2008, it appears a severe crunch in US crude glycerin supply is about to unfold, courtesy of the woes in the domestic biodiesel industry. The only people who may be grinning in anticipation of what comes next are overseas glycerin suppliers.

The US biodiesel industry produces a huge amount of crude glycerin as a coproduct of the renewable fuel. US-based companies such as Procter & Gamble, Cargill, Archer Daniels Midland (ADM) and Vantage Oleochemicals refine the crude material and then sell it to makers of everything from toothpaste to polyols to animal feed.

But US biodiesel refiners are closing their doors amid credit woes and a government delay in extending subsidies.

In the meantime, crude glycerin production rates are approaching zero, market sources say.

Now that the biodiesel outlet is closed, glycerin refiners can expect to put up more money to acquire supply, says Daniel Oh, president of Renewable Energy Group (REG), the largest supplier of biodiesel in the US.

"Glycerin is obviously a huge output of the biodiesel industry, and there is going to be an impact," Oh says.

And, as usual, producer pains eventually find their way to buyers. Says one glycerin producer: "I think what will happen is you will see prices spike in the spot market, and buyers who didn't honor contracts before will pay more for glycerin."

Another possible wrench in the works is coming from ADM, which is expected to start its renewable propylene glycol (PG) plant sometime during the first quarter. The plant, with nameplate capacity of up to 125,000 tonnes/year, is expected to be a huge draw on US crude glycerin.

ADM would not answer questions regarding the plant's exact capacity or start-up date.But if the company does decide to go through with its plans, crude glycerin supply in the US could get even tighter.

Domestic glycerin sellers say prices could jump by as much as 10 cents/lb ($220/tonne) in the next few months before suppliers in Asia and Europe - regions awash with glycerin that is priced lower than in the US - decide to fill the breach.

"If ADM hits 100,000 tonnes/year, it will impact the domestic market in the short term until imports catch up," says one large-volume glycerin buyer in the US. "The imports are there and will step up over the quarter."

Vegetable glycerin spot prices were assessed at 21-23 cents/lb FD (free delivered) Northwest Europe on December 23, according to data from global chemical market intelligence service ICIS pricing. In Asia, vegetable glycerin was assessed at 23-25 cents/lb CFR (cost and freight) Northeast China.

Even with shipping costs, that material from abroad could become more desirable if US glycerin values move much higher than current levels. Vegetable glycerin was assessed at 27-31 cents/lb FOB (free on board) Midwest on December 23.

"When that ADM machine turns on - if it's well-built and keeps running - it will be an interesting year," a buyer says.

Meanwhile, in the US fatty alcohol market, the fourth quarter (Q4) of 2009 found suppliers seeking to raise prices on an account-by-account basis, with no formalized announcements to consolidate the sellers' intentions.

Suppliers sought varying increases, from a fraction of a cent up to 3-5 cents/lb. By early January, buyers were discussing implementation levels of about 2.5-3.5 cents/lb, but Q1 ranges were not yet clarified.

Increases were achieved mostly within the natural alcohol tier. Synthetic detergent range alcohols moved at a rollover between Q4 and Q1, diluting the overall implementation levels in the US market.

Firm surfactant demand buoyed the mid-cut detergent range alcohols during Q4 and had buyers anticipating price moves in Q1.

Blended C16-18 alcohols also experienced good Q4 demand, although they were less well-supported than the mid-cuts because of ample supply of the blend in the US.

Moving into Q1, mid-cut prices were rearranging to higher levels after maintaining a range of 60-65 cents/lb across Q4. Blended C16-18 alcohol prices were in the range of 62-73 cents/lb by early January and were expected to hold this spread for the month. Short-chain C8-10 natural and synthetic and C8-11 synthetic branched alcohols were stabilized in a $1.15-1.30/lb range in Q4 and early Q1.

US fatty alcohol demand is expected to remain steady in Q1, a welcome factor to markets still wary of the economy.

But sellers are anxious about fluctuating feedstock oil prices, maintaining that higher prices are necessary to sustain margins.

Asian production streams are said to be throttling back on alcohols, as well as fatty acids because of attractive options available in selling the feedstock oils outright and skipping alcohol/acid production altogether.

US tallow-based fatty acids are also grappling with higher feedstock prices in Q1. Prices for bleachable fancy tallow (BFT), the primary US feedstock, pushed higher in Q4 as biodiesel production put additional strain on the overall fats and grease supply.

Although the US biodiesel industry enters 2010amid an unexpected and potentially disastrous failure by Congress to extend its tax credit, biodiesel producers have wrought havoc on the tallow-based fatty acid segment.

The in/out approach taken by multifeedstock-capable biodiesel production was routinely blamed for boosting BFT prices in Q4, registering difficulties for fatty acid producers in everything from base cost to monthly and/or bimonthly contract adjustments to charting quarterly cost analysis and projections.

Biodiesel producers would come into the fats market, buying up whatever grease supply offered the lowest cost for the feedstock-hungry plants, where the cost of this input is about 85% of total. Whichever grease supply was diminished by this activity, whether yellow grease or used vegetable oil or BFT, the grease market's close supply structure consequently squeezed prices throughout.

BFT prices in Chicago hovered in the low-30 cents/lb range in late December, up from low- to mid-20 cents/lb the previous year.

Between late December 2009 and early January 2010, tallow-based fatty acid suppliers were considering issuing formal quarterly price announcements for increases above the fluctuating BFT cost basis.

Ben Lefebvre is markets editor for ICIS pricing. Based in Houston, Texas, US, he covers soda ash, acrylonitrile-butadiene-styrene (ABS) and polycarbonate (PC), as well as the US biodiesel industry. He previously reported for the Sun-Times Media group.

Judith Taylor has been an ICIS editor for 10 years, with experience in a wide range of markets, including glycerin, other oleochemicals, and biodiesel. She currently covers several oleochemical products, as well as caustic soda and polyvinyl chloride (PVC) in the US and Latin America. She holds a bachelor's degree in biology, with a minor in chemistry.

By: Ben Lefebvre
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