Europe Q2 fatty acid prices likely to rise - sources

24 February 2010 17:52  [Source: ICIS news]

LONDON (ICIS)--European fatty acid prices are likely to increase in the second quarter amid upward pressure resulting from a range of factors, sources said on Wednesday.

The most common factor cited by sources was the high price of raw materials, both palm and tallow.

Palm oil prices have increased more or less steadily throughout the first quarter and have been the primary price driver for fatty acid prices.

Although the approaching Malaysian Price Outlook Conference in March will give an insight into the direction palm oil prices will take for the next few months, many sources said any influence that the gathering will have on the oleochemicals markets would not be felt until the third quarter.

While tallow fat prices have not shown quite the same persistent upward movement, prices did spike over the last two weeks by around €50/tonne ($68/tonne).

The increase was brought on by competition from the biodiesel industry – which only utilises tallow during the summer months – and sources said a continued firming of prices was likely.

“I would expect tallow fatty acids to increase by a minimum of €60 in [the second quarter], possibly more if raw tallow keeps going up,” said a trader.

The second factor pushing up prices was the current lack of availability, according to sources.

Sellers have often said over the past several weeks that they had no material available for the spot market, and producers said they were running their plants flat out in order to satisfy contractual agreements.

“I have nothing available [for the spot market]. I’m seeing a lot of extra demand right now, a lot of inquiries,” said a producer.

Some sources said demand in 2010 had been underestimated, leading buyers to maximise their contractual volumes, and that inquiries for additional material in March were being made.

Yet others considered that demand was steady and the tightness was a result of conservatism from suppliers that did not want to risk running high inventories in a weak market.

In addition to the higher prices traded within Europe, the weakening euro against the pound sterling was imposing further costs on producers and traders importing material from overseas, sources said.

These costs would be passed down the supply chain by producers, resulting in even higher European fatty acids prices, sources added.

($1 = €0.74)

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By: Ross Yeo
+44 208 652 3214

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