INSIGHT: Asia fatty alcohol producers eye expansions to tap demand

25 May 2011 17:21  [Source: ICIS news]

By Serena Seng

SINGAPORE (ICIS)--Fatty alcohol producers in Asia are expanding plant capacities seeking to benefit from projected rising consumer demand for finished products such as detergents, surfactants and new applications.

Industry estimates suggest demand for detergents will account for 30% of capacity additions by 2013, and demand for surfactants another 30%, while new applications in plasticisers and polymers, among others, will make up the remaining 40%.

This puts Asia’s total estimated oleochemical and fatty alcohol capacity output from 2011–2015 at 1.3m tonnes/year. The combined production of Indonesia and Malaysia accounts for 61.5% of the total and this slice of the pie is expected to continue to grow beyond 2015.

While the Asia fatty alcohol industry grew at a rate of 5–10% in the two years following the 2008 economic crisis, industry players say there is room to take advantage of demand expansion.

In addition, a correction in the fatty alcohols market since late March this year – particularly for mid-cuts – has encouraged buyers to be active in the market.

Prices reached a record high of $3,550/tonne FOB (free on board) SE Asia (southeast Asia) in February this year for mid-cut alcohols, brought on by volatile feedstock crude palm kernel oil (CKPO) prices.

This spurred buyers to seek compensation for what they saw as “artificially inflated” prices and to push for price reductions.

To cope with the expected increase in demand, producers in the key export regions of Malaysia and Indonesia plan to boost their effective operating capacities by 10–15% by 2013.

In 2010, those capacities were estimated at 460,000 tonnes/year in Malaysia and 290,000 tonnes/year in Indonesia.

They will include the start up of Singapore-based Wilmar International’s 100,000 tonne/year plant in Indonesia by the end of 2011, Domba Mas’s 132,000 tonne/year plant in Indonesia by the third quarter of 2011, and Kuala Lumpur Kepong’s 100,000 tonne/year plant in Malaysia by 2013.

Outside Asia, Middle East petrochemicals major SABIC plans to build an 83,000 tonne/year plant in Saudi Arabia by 2013.

The new capacities are expected to meet rising demand from the fast-developing economies of China and India, where increasingly affluent populations continue to fuel demand for housing, lubricant and personal care chemicals.

In addition, the new plants will also be able to utilise ongoing demand from Europe and the US.

With more emphasis on the environment and a general shift towards products of plant origin, demand for natural fatty alcohols is expected to make up more than 65% of the total global share of detergents, surfactants and chemicals by 2013.

A gradual switch to natural fatty alcohols as feedstocks for plasticisers and polymers has been observed since April this year as oil prices have continued to rise.

Fatty alcohol producers in Malaysia and Indonesia remain confident that with global ethylene (C2) prices generally on the high side in 2011, demand for C8 pure-cut alcohol will rise. C8 is a replacement for ethylene-derived octanol, which is used to manufacture octyl acetate for the flavouring and perfumery sectors.

These producers are optimistic that growth in the C12–14 blended and C16–18 blended alcohol sectors will remain strong, given the recovery in the textile, surfactant and cosmetics industries from the depths of the economic downturn.

However, analysts say the CPKO pricing trend remains unpredictable despite strong production yields in April and May, and prices could remain volatile and on the higher side.

Some industry players are bearish about the outlook, saying high CPKO prices are expected to weigh on sentiment and hinder the recovery and development of Asia’s fatty alcohol industry.

However, others argue the expected strong production of crude palm oil in the second and third quarters of this year will help bring raw material prices down and bolster demand for fatty alcohols.

It is probably too early to determine whether the Asian fatty alcohol industry will be given the benefit of a significant demand boost.

This will depend largely on how the new capacities pan out during the next few years.

By: Serena Seng

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