US oleo players tepid to biodiesel credit collapse

27 September 2010 16:26  [Source: ICIS news]

HOUSTON (ICIS)--US oleochemical market participants have showed tepid reactions to what appears to be the final collapse of 2010 efforts by the Senate to pass an extension on the biodiesel tax credit, sources said on Monday.

The Senate blocked the latest attempt by Senator Chuck Grassley (Republican-Iowa) last week to extend the $1/gal (€0.20/litre) biodiesel blenders tax credit, which lapsed in December.

The biodiesel and oleochemical markets are related because both produce crude glycerine and both can use the same feedstock, such as tallow, grease and vegetable oil.

As a result, the collapse of the biodiesel credit should benefit the oleochemical industry, since there would be less competition for feedstock and lower production of crude glycerine from biodiesel plants.

Crude and refined glycerine market participants have routinely blamed a run-up in grease and fat prices on multi-feedstock biodiesel producers.

As it is, the grease and fat market is narrow, with all but 10% of the material going directly into the food market. The rest is divided among biodiesel producers, fatty acid producers and other agricultural applications.

As a consequence of the oleochemical feedstock connection to the grease markets, market sources said expected a strong reaction from the oleochemical community to the collapse of the tax credit.

But this did not happen.

US oleo players were more concerned about costs in upstream vegetable oil and were relatively non-committal about the biodiesel tax credit or the biodiesel industry in general. 

A glycerine producer said US tallow-based fatty acid and glycerine production continued to hold a competitive price advantage over imported material.

But that advantage could become compromised if the grease and fats prices continued to rise, the source said.

“Raw materials are expensive right now because of the oils,” one glycerine producer said.

The producer pointed out that crude palm kernel oil (CPKO) was tracking about $1,196/tonne (€885/tonne) FOB (free on board) Malaysia this week for September contracts, a rise of $38/tonne from the previous week.

“The biodiesel industry is not strong anymore,” one source said.

“We do not expect any immediate effect from the credit one way or the other,” another oleochemical supplier commented.

“If the vegoil prices rise, other feedstock prices rise,” an oleo importer said.

The biodiesel industry had injected volatility into the US glycerine market because both use processes that make co-product crude glycerine in the same 10:1 ratio.  

Average prices for US refined tallow-based glycerine prices were assessed in September at an average of 36 cents/lb FOB midwest, down from 70.50 cents/lb DEL (delivered) in January 2008, according to ICIS.

The difference between the DEL price assessment and the FOB value is approximately 5 cents/lb, an industry source said.  

While some market sources said the price drop was largely due to the US recession that began in the fourth quarter of 2008, tallow glycerine players continued to push some of the blame onto the volatility that struck the industry with the advent of biodiesel. 

US tallow-based fatty acid producers include Twin Rivers Technology, Vantage Oleochemical, Dial Corporation, PMC and Emery Oleo. Each tallow-based fatty acid producer is also a tallow-based crude glycerine producer and refiner.

Oleochemical importers include Procter & Gamble, VVF and Peter Cremer.

($1= €0.74)

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By: Judith Taylor
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