Oleochemicals: Oleochem users squeezed on rising prices

07 February 2011 00:00  [Source: ICB]

Price increases are on the horizon for oleochemical consumers as fat and oil prices rise

Consumers of fatty acids and fatty alcohols, especially in the surfactants industry, are being squeezed by record-high vegetable oil and animal fats prices worldwide.

In the US, bleachable fancy tallow prices hit 49.5 cents/lb ($1,091/tonne, €797/tonne) in the Chicago cash market as of January 26 - up from 27 cents/lb at the same time last year, as assessed by ICIS. Tallow sellers are reportedly holding back inventory while waiting for the US biodiesel industry to reconsolidate.

At the same time, European tallow prices reached record highs at €800-850/tonne FD (free delivered) NWE (Northwest Europe) in Germany and €750-800/tonne in France and Italy. Besides tight tallow supply, prices are being pulled up by the ever-increasing costs of global vegetable oils, which are boosting the demand for tallow as a cheaper feedstock alternative.

In Asia, crude palm kernel oil rose to Malaysian Ringgit (M$) 405 per pikul (close to $2,200/tonne) FOB (free on board) Malaysia as of January 25, sending shock waves through the industry as prices reached yet another historic high. Crude coconut oil values, meanwhile, touched $2,260/tonne CIF (cost, insurance and freight) Rotterdam, compared with $1,900/tonne seen a month ago.

Global vegetable oil prices have been on an upward trend since June 2010, reflecting the accelerated pace of consumption in both food and fuel markets as well as declining global stocks, which are expected to fall to levels unseen since the mid-1970s, according to industry estimates.

"Pricing of critical oleochemical feedstock has more than doubled in 2010, with little change seen for the start of 2011," said Neil Burns, managing partner at US-based consultancy Neil A. Burns. "As oils have marched steadily upward, key oleochemicals have had no choice but to follow."

US oleochemical producers such as Cognis, Vantage Oleochemicals, and PMC Biogenix have all recently announced price increases, citing escalating fats and oils prices as major drivers.

Vantage Oleochemicals raised its prices for all grades of coconut fatty acids by 4 cents/lb in October last year as the company blamed rising coconut oil costs throughout 2010.

"Coconut oil and palm kernel oil are higher in price today than anytime in 2008 when petroleum oil went to nearly $150/bbl. Unless the full cost is passed on to end consumers, the value chain and subsequently profitability will get squeezed," said Don Ciancio, Vantage Oleochemicals vice president.

Cognis's care chemicals business raised all of its fatty alcohols and methyl esters prices in the US, Canada and Mexico by 20-25%, effective January 15. This is on top of the 12-15% price hikes on the products implemented on November 1, 2010.

Cognis also plans to raise several surfactants prices, such as its low active alkyl sulfates, by 6 cents/lb, high active alkyl ether sulfates by 12 cents/lb, all dry alkyl sulfates by 25 cents/lb and fatty alcohol ethoxylates by 23 cents/lb, effective February 1. These rises are on top of previous price increases of 5-15 cents, which were implemented on November 1.

Cognis, which has just been acquired by BASF, still produces fatty alcohols for both internal consumption and for merchant markets in Europe and the US, noted Dirk Bungel, vice president at Cognis North America, in an interview at the sidelines of the annual American Cleaning Institute (ACI) meeting held in late January in Florida. Cognis is also a major surfactant producer.

"Being vertically integrated into fatty alcohol production is an added leverage at times like these, but there is no doubt that with such high fats and oils prices, there is a need to pass on these increases," said Bungel.

Also on the sidelines of the ACI meeting, US-based oleochemical producer Procter & Gamble (P&G) Chemicals noted record-breaking prices for lauric oils - oils such as palm kernel or coconut oil that are a rich source of the fatty acid lauric acid. P&G Chemicals is a major feedstock supplier for its consumer goods parent firm P&G and the merchant market.

Tom Nelson, director of chemicals/customer business development at P&G Chemicals, noted current lauric oil prices at around $2,200/tonne, driven by short supply and high demand for natural-based chemicals.

"We are operating right now in a VUCA [volatile, uncertain, complex and ambiguous] marketplace," said Nelson. "The last thing we want to do is to push on pricing to customers, but at these sustained feedstock pricing levels, it is creating cost challenges for everybody."

Further innovation is needed to take costs out of the system, he added. The company said it is continuously optimizing its fatty alcohols network and finding new and innovative uses for coproducts such as C16s, C18s and glycerin.

In the fatty acid market, several US tallow-based contract prices are on the rise. PMC Biogenix already announced price increases on its fatty acids and esters by 2-5 cents/lb on index-based pricing depending upon grade, and 10-15 cents/lb on non-indexed pricing, effective February 1.

Some producers had even considered putting a volatility index into contract pricing formulas, which would have offered greater flexibility in coping with the sharp rises and falls in feedstock costs, sources said who spoke on the sidelines of the ACI meeting.

"Feedstock costs are our biggest concern," a major tallow fatty acid supplier said. "Where is the ceiling on feedstock prices?"

Not all US producers, however, favored the volatile index strategy, which failed to take hold in contracts, some market participants verified.

At the ACI meeting, several surfactant companies said they ­expect further pricing pressure for the next six months as fatty alcohol and fatty acid prices continue to rise.

Surfactants, which are big consumers of fatty acids and fatty ­alcohols, are major chemical ­ingredients for detergent and other cleaning products. Palm kernel oil and tallow, in particular, feed a large portion of the surfactants industry.

"Fats and oils prices have gone up by 50-60% in the last three months, which is unsustainable. There is no doubt that surfactant producers have to pass on these price increases," said Steve Turner, director, household care at US-based surfactant producer Evonik Goldschmidt.

Most of Evonik's raw material feedstocks are based on oleochemicals that use animal fats. Last October, the company hiked several off-list prices in North America for products such as quarternary compounds, surfactants, amine derivatives and specialty organic additives by 5-9%.

AkzoNobel Surface Chemistry also raised prices for its fatty amines and derivatives, cationics, nonionics, amphoterics and other surfactants as well as synthetic and biopolymer additives by up to 20%, effective January 1.

Prices for its fat-based oils, alcohols and acrylates will increase by up to 12%, effective February 1. AkzoNobel cited a necessary increase due to the continuous escalation of raw material and regulation costs.

Another surfactants producer, Switzerland-based Clariant, announced price hikes of up to 15% for its entire product portfolio in its industrial and consumer specialties business, effective January 20.

"The adjustments reflect the sharp rise in oleochemical and petrochemical feedstock costs in 1st quarter of 2011 and continuing tightness of oleochemical feedstock availability," Clariant said in a statement.

Several US-based stearic acid derivatives producers such as Norac Additives, Baerlocher USA, and Ferro also intend to hike prices in February and March.

Both Norac and Ferro plan to increase by March 1 their metallic stearates prices by 8 cents/lb and 5 cents/lb, respectively. Ferro's announcement is in addition to a 5 cent/lb price hike planned for February 15. Baerlocher will also increase prices for its tallow-derived metallic stearates by 9 cents/lb, effective February 25.

ICIS assessed, as of January 26, US triple pressed stearic acid spot price at 56-58 cents/lb - up by 5 cents/lb compared with a year ago. Rubber-grade stearic acid was at 51-54 cents/lb compared with 43-46 cents/lb last year.

Palm-based stearic acid contract prices in Europe were assessed at 65-77 cents/lb, while Asian prices were in the range of 63-70 cents/lb, depending on grades and region.

For fatty alcohols, ICIS assessed Asian mid-cut C12-C14 spot prices as of January 26 at $3,100-3,200/tonne FOB, Southeast Asia; European first quarter contract prices at $2,200-2,400/tonne FD, Northwest; and US C12-C15 alcohol contract price at $2,756-3,417/tonne, US Gulf.

Additional reporting by Judith Taylor in Houston, Ross Yeo in London and Serena Seng in Singapore

Author: Doris Guzman

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