13 September 2010 00:00 [Source: ICB]
Producers cite tight supply as well as higher feedstock costs for the price rise
Amid the doom and gloom scenario predicted for the global oleochemical sector this year, the fatty alcohol market is bucking the trend, as demand continues to strengthen and supply is said to be tightening.
"In spite of dire predictions of chronic overcapacity in the market, the fatty alcohol demand appears to have taken off dramatically this year [and] to have tightened the situation considerably," said Norman Ellard, director of Singapore-based consulting and trading company Rohen.
"It appears that the emerging markets, especially China, have led this demand increase, as well as the continued trend towards liquid detergents," he added.
The increases are being seen primarily on the C12-C14 mid-cut fatty alcohol chains, says Ellard. The products are mostly consumed in the detergents market.
Asian C12-C14 fatty alcohol spot prices have risen to a record high of around $1,970-2,050/tonne (€1,530-1,592/tonne), FOB, (free on board), SE (Southeast) Asia, as assessed by ICIS on September 1.
Asian prices last rose close to the $2,000/tonne mark in March 2008, when mid-cut C12-C14 alcohols were traded at $1,900-1,970/tonne.
"I have never seen prices reach the $2,000/tonne level in the past 10 years," a Singapore-based trader said. A Japanese trader noted that current prices are now at historical highs.
Asian producers cite tight supply and higher prices of feedstock palm oil, palm oil derivatives and crude coconut oil as drivers for the hikes.
Some producers cite higher offers at the $2,100-2,150/tonne level and are unwilling to release cargoes at prices below $2,050/tonne.
"In fact, we're even thinking of raising prices to $2,200/tonne as there is no longer any material at the $2,000/tonne level, given the increasing feedstock costs," one producer said.
TIGHT WESTERN MARKET
In Europe, mid-cut alcohols are also tight and are said to be sold out until late October to early November. Current price levels were assessed by ICIS at €1,750-€1,800/tonne, FD (Free delivered), NWE (Northwest Europe). Third quarter (Q3) contract prices for C12-C14 were at €1,660-€1,700/tonne.
"European inventories in particular will need to be rebuilt in the value chain and this may exert some upward pressure on demand for the rest of the year," he added.
Several European producers note little chance of fatty alcohol prices declining in the short term because of tight supply and higher raw material costs.
The US market is experiencing similar conditions this year as Q3 price contracts for C12-C15 mid-cut natural and synthetic detergent alcohols jumped by $309-397/tonne in July to settle at the current $1,962-2,205/tonne, delivered, US Gulf.
Home care detergent and industrial surfactant demand remained strong, while demand from personal care and cosmetics fluctuated between Q2 and Q3, according to industry sources.
Because of the price hikes, detergent buyers worldwide are examining options to switch from oleochemical-based alcohols that use vegetable oil feedstock to ethylene-derived synthetic alcohols in their formulations.
The majority of detergent formulators and manufacturers are known to switch between synthetic fatty alcohols and oleochemical-based alcohols, depending on pricing economics.
Detergent formulators can also switch to fatty alcohol surfactant alternatives such as linear alkylbenzene sulfonate (LAS).
"Where there is flexibility, the detergent formulators are using more petroleum-based products to take advantage of price differentials with the oleochemical-based products," said Burns. "This is most marked in laundry detergent, industrial and institutional cleaning products and other industrial applications."
Formulators, according to Burns, have now built in flexibility to change formulas to some extent to get the best economics as feedstock pricing changes.
"This is a fact of life today for most companies and continues to be a research and development focus - to develop a suite of formulas that can be deployed quickly as conditions change," he added. Ellard noted production issues for global synthetic alcohol producers as well, which have tightened this market.
"I am not sure that synthetics have taken all their cost advantage to the market. It is safe to assume that the synthetic capacity will remain in a sold-out position, while the growth will continue to go to the natural route, so I don't see any real shift," Ellard added.
Major synthetic alcohol producers include the global Shell Chemicals and South Africa-based Sasol. Major natural fatty alcohol producers centered in Southeast Asia include Emery Oleochemicals, Kuala Lumpur Kepong, Wilmar International, FPG Oleochemicals, Ecogreen Oleochemicals and IOI Oleochemicals.
NEW PLAYER IN TOWN
The oleochemical fatty alcohol industry this year will be adding a new player from the Middle East.
Riyadh, Saudi Arabia-based SABIC announced late last month its plans to build a 83,000 tonne/year natural fatty alcohol plant in Al-Jubail, Saudi Arabia, through its affiliate Saudi Kayan Petrochemical. Start-up of the facility is expected by the end of 2013.
This is the first oleochemical fatty alcohol plant in the Middle East, according to SABIC. The facility will use palm kernel oil and coconut oil for feedstock.
"The SABIC plant would be very strategic in the growing market in the Middle East," said Ellard. "Logistically, it makes sense from the perspective of proximity to some key markets and the fact that SABIC has some of the petrochemical adjuncts for surfactants," he added.
The move surprised some people, given that the company is a pure petrochemical player, saidBurns. However, this approach has also been successfully pursued by another player, Sasol, which has alcohol capacities based on petrochemical as well as oleochemical routes through a joint venture in China.
"I think SABIC will be successful as it has a focus on derivatives to make full use of its strong existing position in petrochemicals like ethylene, ethylene oxide [EO], ethanolamines and ethylene glycol [EG]," said Burns.
"They are taking a long view and seeking to establish a balanced feedstock approach which, I think, is wise as economics of different feedstock types can change and move in different directions," he added.
In the long term, the Middle East will be an increasingly popular location for surfactant manufacture, both consultants note.
Ellard said it was too early to say whether other players would enter the Middle East market, while Burns said only the biggest, most integrated players could be successful in doing so.
Market participants believe that the impact of SABIC's planned facility on the Southeast Asian fatty alcohol trade will be minimal, given that the alcohol production is believed to be for captive use in SABIC's downstream EO business.
"Should SABIC decide to export its excess capacity in the future, it will more likely do so to the Middle East and Africa, where it would enjoy zero duty," a market player said.
Additional reporting by Serena Seng in Singapore, Judith Taylor in Houston and Ross Yeo in London
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