30 September 2010 18:48 [Source: ICB]
Regional issues concerning biodiesel complicate the global market for glycerin
The market for glycerin, a coproduct of biodiesel manufacturing, is directly affected by the uncertainty now afflicting that heavily subsidized industry.
In the US, biodiesel production has collapsed since a federal tax credit was allowed to expire last year. US producers had already been burdened by antidumping duties imposed by the EU earlier in the year. A new renewable fuels standard could inject some life into the industry.
Rex Features/Gareth JJ Burgess
Biodiesel capacity utilization in Asia is already low, but booming demand for oleochemical products more generally has meant that the production of oleochemical glycerin in the region has not diminished.
The US biodiesel industry is in limbo. Capacity utilization is at about 10%, according to a number of former market participants. The primary region propping up that output is the midwest corridor, where states such as Iowa, Indiana and Illinois early on established state fuel mandates for biodiesel.
Other regions where exports were active, particularly the US Gulf coast, are essentially closed down. There has been no opportunity to move product amid lower prices for petroleum diesel and without the US federal biodiesel tax credit, which expired at the end of 2009.
The US biodiesel industry has also been hit by five-year antidumping and countervailing duties on B99-blend biodiesel (99% biodiesel, 1% mineral diesel) from the US to Europe, which the European Commission imposed in March 2009.
The EU is investigating the possibility that US biodiesel exporters have been circumventing these duties.
However, loss of the $1/gal (€0.196/liter) US federal tax credit has been the greater blow.
Since it expired, the tax credit has been attached to various pieces of legislation but never passed.
The biodiesel tax credit is "caught in the cross-hairs" of other legislation, according to a spokesperson for the National Biodiesel Board (NBB). "Over the last 12 months, health care took up all the air in the room," Michael Frohlich, director of federal communications at the NBB, said recently.
However, implementation of the RFS2 (Renewable Fuels Standard 2) in 2011 is expected to be "a shot in the arm for the industry," Frohlich added. "Europe was always considered a temporary market."
Convergence of initial RFS2 mandates for 800m gal of biodiesel to be used in the US domestic market and the cliff-hanger status of the federal tax credit suffice to keep an uneasy level of uncertainty about the industry that spills over into the crude and refined glycerin segments.
Oleochemical glycerin producers and refiners are challenged to cope with bottomed-out refined glycerin prices and a clattering industry-wide misalignment in understanding what constitutes each grade of glycerin and how prices are affected.
Crude glycerin, even at 80% purity, from biodiesel cannot be used by traditional oleochemical refiners in the US because it can damage expensive pipe and storage equipment. It must first be refined to some acceptable purity level. It may then be sold into the US market as "semi-refined" or "technical-grade" refined glycerin, typically commanding significantly lower prices.
US oleochemical refiners are fatty acid and fatty alcohol producers, both of the processes for which create a clean glycerin coproduct that is referred to as "splitter crude."
Splitter crude glycerin is not sold into the commercial market, but moves directly into the refining process to become USP certified glycerin, and/or kosher/halal certified if the process and feedstocks are totally free of animal contaminants.
The juxtaposition of crude glycerin from biodiesel with crude glycerin from the oleochemical industry continues to form levels of uncertainty that thwart business planning.
EUROPE GETS GREENER
In 2010, the production of biodiesel in the EU decreased compared with previous years. Europe, however, remained the leading producer worldwide.
The decrease in production in Europe has been attributed to exports arriving from South American countries such as Brazil and Argentina. Malaysia and Indonesia are also able to sell into Europe via duty-free access, a source of much debate among domestic players. The price of raw materials is also a contributing factor, as producers have struggled to source supplies.
The situation could change when the new Renewable Energy Directive (RED) comes into force in January. From what is known of the new framework, raw materials used to produce biodiesel will need to meet a set percentage of greenhouse emissions savings. The framework will also look at unfair trade practices abroad.
For the fourth quarter (Q4), biodiesel is being bought only until the end of the year, as the market is unwilling to take the risk that it does not meet guidelines for 2011.
These ongoing troubles with biodiesel have, in turn, affected by-product crude glycerin. Prices have been on an upward trend for the past few months. At the start of the year, the price of crude glycerin was stable, but this changed through Q2 and Q3 as reports of shortages in supply emerged, coupled with strong demand.
Players in the market have predicted higher numbers for Q4, as the pressure on the production of biodiesel shows no signs of abating in the near future. However, the market remains optimistic that Q2 and Q3 of 2011 will see prices come down as the RED is implemented.
GLYCERIN STEADY IN ASIA
Developments in the key markets of Europe and the US have considerably reduced demand for palm oil-based biodiesel from Asia. But the supply of glycerin, a by-product of biodiesel production, has been largely unaffected. Booming oleochemical production has made up the difference.
In the US, with the $1/gal biodiesel tax credit being allowed to expire at the beginning of the year, buyers were unwilling to shoulder the cost of blending palm oil with diesel, so the arbitrage window from Asia to the US closed, and the production of bio-diesel in Asia began tapering off in response.
Demand from Europe has faltered as well, owing to environmental concerns over deforestation in Indonesia and Malaysia. It is claimed that palm oil-based biodiesel only meets 19% of the greenhouse gas emission savings required by the EU's RED, which minimum sets a minimum 35% reduction. Demand is therefore expected to fall significantly by December.
These uncertainties in the future of the Asian palm oil-based biodiesel industry have weighed on market sentiment.
Biodiesel plants in Asia have cut operating rates, even idling capacity for months as tepid demand capped exports. Although economically unattractive, a few plants are still running, such as Singapore-based Wilmar International, Musim Mas, of Indonesia, Malaysia's Carotech and Australia's Mission NewEnergy.
Producers from these plants declined to reveal current operating rates. However, one trader estimates capacity utilization to be 10% at the most. Total production capacity for refined glycerin from biodiesel production in the region is estimated to be 786,400 tonnes/year, putting the projected output at just 78,640 tonnes/year.
The decline in biodiesel production in Asia has had little impact on the supply of refined glycerin, however, because of robust growth in the oleochemicals sector, which has filled the gap.
Whereas demand for refined glycerin in Asia this year is at around 280,000 tonnes, the supply of refined glycerin from the oleochemical sector alone is almost twice that, in the range of 500,000-543,000 tonnes/year.
New applications for refined glycerin in the areas of epichlorohydrin (ECH), propylene glycol and aromatic solvents are expected to fuel the growth of the sector in 2011 and 2012. Solvay Thailand's ECH plant, due to come on stream in Q4 2012, is expected to use up 120,000 tonnes/year of refined glycerin, while Dow Shanghai's ECH plant (2012) is expected to utilize 150,000 tonnes/year. In addition, Samsung Korea's ECH plant (2012) will process an estimated 30,000 tonnes/year.
In the refined glycerin to propylene glycol (PG) route, US-based Archer Daniels Midland (ADM's) PG plant, operational in 2010, was expected to utilize 100,000 tonnes of refined glycerin. Besides ADM, Huntsman and Dow Chemical both have plans to produce PG from refined glycerin.
The commercial production of glycerin-based ethanol, isoprene and acetone would be undertaken by US-based Glycols Biotechnologies' Malaysian plant in early 2012. Other applications of refined glycerin includes research by US-based Procter & Gamble to produce 2-amino-1-propanol from glycerin.
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