FocusAsian fatty acid prices at decade high; Q1 2011 looks grim

15 November 2010 08:26  [Source: ICIS news]

By Serena Seng

Palm oil fruit harvestingSINGAPORE (ICIS)--Asia fatty acids prices have hit a 10-year historical high but the outlook for palm oil supply and demand is dismal - on lower yields and high values respectively - for the first quarter of 2011, sources said on Monday.

Market concerns had prompted prices of fatty acids to increase month-on-month to the current 10-year high, traders said.

Actively traded fatty acid category known as C12 lauric acid was traded at $2,100-2,180/tonne (€1,536-1,594/tonne) FOB (free on board) SE (southeast) Asia on 10 November 2010 compared with $500-800/tonne FOB SE Asia on 8 November 2000.

Simliarly, frequently traded C18 triple pressed stearic acid category was traded at $1,250-1,280/tonne FOB SE Asia on 10 November 2010 compared with $320-350/tonne FOB SE Asia on 8 November 2000, according to data from ICIS.

Growing concerns about poor palm fruit yields in the last quarter of 2010 and the first few months of 2011 have fuelled market fears that prices of palm oil derivatives were likely to increase further in the coming weeks, a Malaysian producer said.

Palm oil derivatives include lauric oils, palm stearin and crude palm kernel oil.

Prices of oleochemicals will also be affected as crude palm oil (CPO) and its derivatives are widely used as feedstock in oleochemical production.

According to statistics from the Malaysian Palm Oil Board, palm fresh fruit bunch yield dropped 0.41 tonnes per hectare to 1.73 tonnes/hectare in October 2010.

In October 2009, the yield was 2.14 tonnes/hectare.

The dip in yield has raised concerns that a CPO shortage was likely in the first quarter of 2011, a palm oil trader said.

“The La Nina [weather] effect is taking its toll on the harvest of the palm fruit. I am sure coconut fruit harvest is also affected”, a key Malaysian plantation owner said.

La Nina causes extreme weather disturbances like floods in many parts of the world, including Malaysia, Indonesia and the Philippines, and has been known to destroy crops and reduce yield.

The oil from the coconut fruit is also used to make oleochemicals, but this is common only in the Philippines, a key coconut plantation region. 

In addition, the weak US dollar has also had an effect on market sentiments.

“The weak US dollar has also prompted many producers to raise offers to hedge against currency exchange losses,” the trader added.

The market outlook for palm oil supply and demand remained bleak in the first quarter of 2011, with a total of about 300,000 tonnes of CPO likely to be produced until then, the plantation owner said.

The usual production volume is about 100,000 tonnes of CPO per month.

Demand too was expected to be dismal because high prices would confine purchasing to only when absolutely necessary, traders said.

($1 = €0.73)

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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Serena Seng

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