Fatty alcohol players predicting feedstock price correction

17 November 2010 15:53  [Source: ICIS news]

LONDON (ICIS)--Palm kernel oil, the feedstock for natural fatty alcohols, could see a price correction in the coming months after a sustained period of record highs, industry sources said on Wednesday.

A European buyer said fluctuations in the price of soybean oil was a sign that prices in the edible oils markets, which include palm oils, may have peaked.

“There’s no hard and fast mathematical connection between the two [soybean oil and palm oil], but there’s a link, for sure. It looks like a correction is on its way,” the buyer said.

A producer based in Asia agreed that a reduction in the price of palm oil, and therefore also palm kernel oil, was likely to happen soon, but said that it was impossible to say when or by how much.

The producer said: “[The price of] $1,600/tonne (€1,184/tonne) is too high. These speculators, they’re holding on to contracts worth $1,600/tonne. It can’t go much higher. Soon they will sell. Soon enough everyone is going to sell and prices will come down again. I would sell, if I was them. It’s so high they risk losing out if they don’t sell soon.”

Neither buyers nor sellers expected the correction to be full and said they did not anticipate seeing prices at the same level of a few years ago.

“I doubt it’ll go as low as $600-700/tonne. We’ll never see $500/tonne again. Once prices have come down they’ll probably hover between $700-1,000/tonne,” said the producer.  

Oleochemicals constitute around just 10% of palm oil demand, with the vast majority going to the food industry. As such, the fatty alcohols and acids markets exert very little, if any, influence over the price of their feedstock.

Instead, edible oils have become commodities subject to speculation and hedging, and the recent inflation of palm kernel oil prices has had no connection with demand from the oleochemicals markets.

“The big guys [integrated plantation owners/producers], they’re laughing. They’re opening champagne bottles right now. The rest of us are all suffering. Luckily there is also a shortage of alcohols which has helped [boost prices],” the producer said.

Buyers said there was a faint hope that fatty alcohol prices could be affected as early as the first quarter of 2011.

“I’m starting to hope there might not be another increase. I’m even beginning to expect we might see a correction, who knows?” the buyer added.

The producer said that the tight supply of fatty alcohols was likely to ease once the feedstock price came down, as producers would be able to stop protecting their margins and increase their production rates.

“Right now it’s getting worse [the tightness]. No-one is producing at full rates with these [feedstock] prices. But if the price comes down, rates should go up and we should see some more product,” the producer said.

Crude palm kernel oil prices fell $20/tonne to $1,585/tonne FOB (free on board) Malaysia, week on week.

($1 = €0.74)

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By: Ross Yeo
+44 208 652 3214

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